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ACCA Applied Knowledge · Management Accounting · Standard costing system

Budgeted production was 5,000 units at a standard fixed overhead of $6 per unit (budgeted fixed overheads $30,000). Actual output was 4,600 units and actual fixed overhead expenditure was $31,500. What are the fixed overhead expenditure variance and the fixed overhead volume variance?

The expenditure variance is $1,500 adverse because actual spend of $31,500 exceeded the $30,000 budget. The volume variance is $2,400 adverse because output was 400 units below budget, each carrying $6 of fixed overhead absorption, so under-absorption occurred.

  1. AExpenditure $1,500 adverse; volume $2,400 adverseCorrect
  2. BExpenditure $1,500 adverse; volume $2,400 favourable
  3. CExpenditure $3,900 adverse; volume nil
  4. DExpenditure $1,500 favourable; volume $2,400 adverse

Explanation

Expenditure: budget $30,000 less actual $31,500 = $1,500 adverse. Volume: (4,600 - 5,000) x $6 = $2,400 adverse, since output was below budget and less overhead was absorbed. Check: absorbed 27,600 less actual 31,500 = 3,900 adverse total = 1,500 + 2,400. The nil volume option wrongly treats the total as expenditure only.

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