ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
A company's fixed overhead expenditure variance is $2,000 adverse and its volume variance is $5,000 favourable. What is the total fixed overhead variance?
The total fixed overhead variance is $3,000 favourable. The expenditure variance of $2,000 adverse is netted against the volume variance of $5,000 favourable, leaving a net favourable amount of $3,000.
- A$3,000 favourableCorrect
- B$3,000 adverse
- C$7,000 favourable
- D$7,000 adverse
Explanation
The total fixed overhead variance is the sum of expenditure and volume variances. Netting $5,000 favourable against $2,000 adverse gives $3,000 favourable. Adding them as if same direction gives $7,000, which is wrong.
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