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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

A company absorbs fixed overheads at $8 per unit using a budget of 5,000 units. Budgeted fixed overhead was $40,000. Actual output was 4,700 units and actual fixed overhead cost was $41,500. What is the total fixed overhead variance?

The total fixed overhead variance is $3,900 adverse. Absorbed overhead was 4,700 units x $8 = $37,600, but actual cost was $41,500, so overhead is under-absorbed. This equals the $1,500 adverse expenditure variance plus the $2,400 adverse volume variance.

  1. A$3,900 adverseCorrect
  2. B$1,500 adverse
  3. C$2,400 adverse
  4. D$3,900 favourable

Explanation

Absorbed overhead = 4,700 x $8 = $37,600. Actual cost is $41,500, so under-absorption is $3,900 adverse. Check: expenditure variance $1,500 adverse plus volume variance 300 x $8 = $2,400 adverse gives $3,900. The $1,500 option is only the expenditure variance.

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