Final answer:
The equation provided by the student is not entirely accurate. The actual cost is equal to the standard cost plus or minus price and quantity variances. Budgeted cost is predetermined and unaffected by these variances.
Step-by-step explanation:
The equation presented by the student, Standard cost + price variance + quantity variance = budgeted cost, is a simplified representation of how variances in cost accounting can affect the overall budgeted cost of production. However, the given equation is not entirely accurate. To correctly reflect the relationship between these elements, the appropriate formulation would be that the actual cost is equal to the standard cost plus or minus the price and quantity variances, represented by the equation: Actual Cost = Standard Cost + Price Variance + Quantity Variance. Budgeted cost is typically predetermined and is what the actual cost is compared against.
Considering a budget for personal expenses as an example, the budget is planned as the income available to spend on items, expressed as Budget = P₁ × Q₁ + P₂ × Q₂, where P and Q represent the price and quantity of items respectively. Variations from this budget due to actual spending give rise to price and quantity variances, which do not alter the original budgeted cost but indicate deviations from the expected expenditure.