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ACCA Applied Knowledge · Management Accounting · Standard costing system

Budgeted output was 2,000 units with a standard variable overhead of $5 per labour hour and 2 hours per unit. Actual output was 1,900 units, taking 3,900 hours, with actual variable overhead cost of $20,100. What is the variable overhead expenditure variance?

The variable overhead expenditure variance is $600 adverse. Actual hours of 3,900 at the standard $5 rate should cost $19,500, but actual cost was $20,100, so spending exceeded the flexed standard by $600.

  1. A$600 adverseCorrect
  2. B$1,100 adverse
  3. C$500 favourable
  4. D$600 favourable

Explanation

Expenditure variance compares actual cost with standard rate x actual hours: 3,900 x $5 = $19,500. Actual $20,100 less $19,500 = $600 adverse. $1,100 adverse would wrongly compare actual cost with standard cost for output (1,900 x 2 x $5 = $19,000), which mixes in efficiency.

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