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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Budgeted fixed production overheads were $40,000 for a budgeted output of 5,000 units, absorbed on a per-unit basis. Actual output was 4,600 units and actual fixed overhead expenditure was $41,000. What is the fixed overhead volume variance?

The fixed overhead volume variance is $3,200 adverse. Output was 400 units below budget, and each unit absorbs $8 of fixed overhead, so $3,200 less overhead was absorbed than budgeted. The $1,000 figure is the expenditure variance.

  1. A$3,200 adverseCorrect
  2. B$3,200 favourable
  3. C$1,000 adverse
  4. D$4,200 adverse

Explanation

The absorption rate is $40,000 / 5,000 = $8 per unit. Absorbed overhead is 4,600 x $8 = $36,800 against a budget of $40,000, so the volume variance is $3,200 adverse. The $1,000 adverse figure is the expenditure variance. The total underabsorption of $4,200 adverse combines the two variances.

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