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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Brandt plc budgeted to make 1,000 units, with a standard of 2 labour hours per unit and a variable overhead rate of $5 per hour. It actually made 1,200 units, worked 2,300 hours and incurred variable overhead cost of $11,000. What is the total variable overhead variance?

The total variable overhead variance is $1,000 favourable. Actual output of 1,200 units has a standard variable overhead cost of $12,000, compared with actual cost of $11,000. The budget must be flexed to actual output, not compared with the original 1,000-unit budget.

  1. A$1,000 favourableCorrect
  2. B$1,000 adverse
  3. C$500 favourable
  4. D$1,500 favourable

Explanation

Standard variable overhead for actual output = 1,200 × 2 × $5 = $12,000. Actual cost was $11,000, giving $1,000 favourable. Check: expenditure (2,300 × $5 − $11,000) is $500 favourable and efficiency ((2,400 − 2,300) × $5) is $500 favourable. Comparing with the unflexed budget of $10,000 wrongly gives $1,000 adverse.

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