Final answer:
The total budget variance is primarily caused by differences in quantity and price, impacting fixed and variable costs. Fixed costs remain constant, whereas variable costs change with production levels. Budget variance analysis involves comparing expected versus actual costs in these areas.
"The correct option is approximately option 1"
Step-by-step explanation:
The total budget variance in business or accounting is typically caused by differences in expected versus actual figures in terms of quantity and price. When analyzing total costs, it is important to differentiate between fixed costs and variable costs.
Fixed costs are those that do not change regardless of the level of production, such as rent and equipment. They represent the vertical intercept on the total cost curve. On the other hand, variable costs fluctuate with the level of output and include expenses like labor and raw materials. As production increases, variable costs are added to fixed costs to derive the total cost.
For instance, consider a barber shop with fixed costs of $160 per day. If barbers are hired at $80 each per day, the variable costs depend on the number of barbers working.
The quantity of haircuts that can be produced increases with more barbers, and so do the variable costs. The total budget variance can thus be assessed by looking at the differences between budgeted and actual quantities and prices of these cost components.