Imagine taking two pages into a sale-preparation meeting. The first says Job A was expected to leave C$50,000. The second says it left C$39,600 after the costs listed. Someone circles the C$10,400 difference and writes “What happened?” This guide supplies a fictional file in which that question can be answered, then deliberately removes one piece of evidence.
BDC’s costing guidance starts with the cost object: the job, product or other item being measured. Costs may be traced to it or allocated, depending on feasible linkage. Accounting and operations need coordinated data. Here, the task is to explain completed Job A while keeping its specified costs separate from omitted business expenses.
Open the fictional file
All businesses, figures and records below are invented. Amounts are Canadian dollars. Alder Projects has two completed jobs, A and B, in one closed period. Finance supplies C$120,000 of recognized revenue for each. Completion does not establish that amount: it is a stipulated input. There is no work in progress, return, scope change, foreign-exchange movement or tax in these figures.
A’s output and scope are identical in both columns. Labour rates include stipulated direct employment costs only; the shared pool excludes every direct amount. Other business expenses remain omitted. The residual is not gross or net profit, cash, an EBITDA adjustment or valuation.
Job A: the starting inputs
Material quantity
Original estimate: 1,000 units
Actual: 1,100 units
Material cost per unit
Original estimate: C$20
Actual: C$22
Labour hours
Original estimate: 500
Actual: 550
Direct labour cost per hour
Original estimate: C$60
Actual: C$64
Subcontract cost
Original estimate: C$10,000
Actual: C$10,000
Assigned shared cost
Original estimate: C$10,000
Actual: C$11,000
The estimate is EST-A-01. The actual file is ACT-A-01. Keep those names beside the two columns throughout the exercise. There is no revised estimate hidden between them. ACCA’s variance explainer distinguishes original, revised and actual amounts; switching the starting point would answer a different question.
EST-A-01: materials C$20,000 + labour C$30,000 + subcontract C$10,000 = C$60,000 direct cost. Adding C$10,000 assigned shared cost gives C$70,000. C$120,000 − C$70,000 = C$50,000 residual.
ACT-A-01: materials C$24,200 + labour C$35,200 + subcontract C$10,000 = C$69,400 direct cost. Adding C$11,000 gives C$80,400. C$120,000 − C$80,400 = C$39,600 residual.
Explain the C$9,400 direct-cost movement
ACCA’s material-variance guidance separates quantity and price effects. For unchanged output, compare quantities at the original rate, then compare rates using actual quantity. Our convention counts an increase as positive and puts the interaction into the rate effect once.
Material quantity: (1,100 − 1,000) × C$20 = C$2,000.
Material price: 1,100 × (C$22 − C$20) = C$2,200.
Together: C$4,200, matching C$24,200 − C$20,000.
Pricing the C$2 increase at the original 1,000 units would give C$2,000 and omit C$200 on the extra 100 units. Using 1,100 includes that interaction once.
Apply the same two-factor arithmetic to hours and direct employment cost per hour. This is our independently checked calculation, not a quoted ACCA labour formula.
Hours: (550 − 500) × C$60 = C$3,000.
Rate: 550 × (C$64 − C$60) = C$2,200.
Together: C$5,200, matching C$35,200 − C$30,000.
The labour rate effect includes C$200 on the additional 50 hours.
The direct-cost bridge is C$2,000 + C$2,200 + C$3,000 + C$2,200 = C$9,400. Subcontract cost contributes zero change.
The separate C$1,000 increase in assigned shared cost brings the specified-cost change to C$10,400. Extra assignment is not evidence of extra company spending.
Ask two different questions of the records
Quantity records and invoice prices explain different components. Hours and cost rates also need separate support. A numerical difference alone establishes neither waste nor personal responsibility.
Maya, Alder’s fictional owner, compares MAT-A-01’s 1,100 units with INV-A-01’s C$22 per unit. Asking only for an overrun invoice would miss the separate quantity question. She needs both records.
Suppose INV-A-01 is missing from the folder. A typed C$22 remains on ACT-A-01, but nobody in this exercise has its supporting invoice. Maya writes “obtain INV-A-01” beside that entry and assigns the request to her fictional finance lead, Noor. She does not replace C$22 with C$20 because the older figure is easier to find. The record stays visibly incomplete.
Change the assignment, hold the spending fixed
BDC’s indirect-cost guidance describes allocating a pool through a driver. Test sensitivity here; neither driver is declared correct. Actual shared cost is C$20,000. A has 550 hours, B 450: C$20,000 ÷ 1,000 = C$20 per hour, assigning C$11,000 to A and C$9,000 to B. Equal revenues instead assign C$10,000 each.
Direct cost
A: C$69,400
B: C$70,600
Hours: assigned shared cost
A: C$11,000
B: C$9,000
Hours: specified cost
A: C$80,400
B: C$79,600
Hours: residual
A: C$39,600
B: C$40,400
Equal-revenue: assigned shared cost
A: C$10,000
B: C$10,000
Equal-revenue: specified cost
A: C$79,400
B: C$80,600
Equal-revenue: residual
A: C$40,600
B: C$39,400
Either assignment gives C$160,000 combined cost and C$80,000 residual from C$240,000. A gains what B loses; spending is unchanged. The original estimate’s total shared pool is unknown, preventing a period-wide spending comparison.
Leave the 50-hour question open
Now change one fact in the file: 50 of the 550 hours recorded against A lack confirmed job assignment. Those 50 are already inside 550; they are not additional hours. The affected job result and hour-based allocation remain provisional. Do not erase the hours or automatically move them to B.
TIME-A-01 still totals 550. Its invented attachment, QUERY-50, identifies the disputed entries. Noor asks the operations lead, Eli, to establish which job those entries belong to. Eli’s answer is missing. This guide therefore supplies no replacement residual and no revised allocation. An attractive new number would conceal the very question the file now needs to answer.
For this meeting, Maya brings EST-A-01, ACT-A-01, the allocation comparison and QUERY-50. Her explanation has a precise stopping point: the first calculation reconciles under its stated inputs; the later version has an unresolved assignment. The next useful answer belongs to Eli. Until it arrives, the question stays on the page.
For general information and education, not legal, tax, investment or valuation advice. Examples are illustrative and do not predict your business’s value, financing terms or sale outcome. Consult qualified advisers about your situation.
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