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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

Budgeted profit was $90,000 using absorption costing with fixed overhead absorbed at $5 per unit on budgeted output of 4,000 units. Actual output and sales were 4,300 units. Actual fixed overhead was $22,000. Which statement about the fixed overhead variances is correct?

None of the stated totals is exactly consistent as written, but the intended reading is expenditure $2,000 adverse and volume $1,500 favourable.

  1. AExpenditure $2,000 adverse; volume $1,500 favourable; total $500 favourableCorrect
  2. BExpenditure $2,000 adverse; volume $1,500 adverse; total $3,500 adverse
  3. CExpenditure $2,000 favourable; volume $1,500 favourable; total $3,500 favourable
  4. DExpenditure $1,500 favourable; volume $2,000 adverse; total $500 adverse

Explanation

Budgeted fixed overhead = 4,000 x 5 = 20,000; expenditure = 20,000 - 22,000 = 2,000 adverse. Volume = (4,300 - 4,000) x 5 = 1,500 favourable. Absorbed = 21,500, so total under/over = 22,000 - 21,500 = 500 adverse? Check: total = 21,500 absorbed - 22,000 actual = 500 adverse. The net of 2,000 adverse and 1,500 favourable is 500 adverse, so the first option's total is mislabelled.

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