ACCA Applied Knowledge · Management Accounting · Flexible budgets
Delta Co's budget for 8,000 units shows variable overheads of $24,000 and fixed overheads of $16,000. Actual output was 9,000 units and actual overheads were $45,000. Compared with a flexed budget, what is the total overhead variance?
The overhead variance is $2,000 adverse. The flexed budget for 9,000 units is $27,000 variable plus $16,000 fixed, totalling $43,000, against actual overheads of $45,000. Using the original $40,000 budget would overstate the adverse variance at $5,000.
- A$5,000 adverse
- B$2,000 adverseCorrect
- C$5,000 favourable
- D$2,000 favourable
Explanation
Variable rate = 24,000 / 8,000 = $3 per unit. Flexed variable = 9,000 x 3 = $27,000. Add fixed $16,000 = $43,000. Actual $45,000 minus $43,000 = $2,000 adverse. Comparing with the original budget of $40,000 gives $5,000 adverse, which ignores the higher activity.
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