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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Dunmore Ltd budgeted 10,000 units and 20,000 labour hours, with fixed overheads of $80,000. Actual output was 10,500 units, taking 20,800 hours, and actual fixed overhead was $82,000. What is the fixed overhead volume efficiency variance?

The volume efficiency variance is $800 favourable. Actual output of 10,500 units should take 21,000 hours at 2 hours per unit, but only 20,800 were used. The 200 hours saved are valued at the $4 per hour fixed overhead rate.

  1. A$2,400 favourableCorrect
  2. B$2,400 adverse
  3. C$800 favourable
  4. D$3,200 favourable

Explanation

Rate = $80,000/20,000 hours = $4 per hour. Standard hours for actual output = 10,500 x 2 = 21,000. Efficiency variance = (21,000 - 20,800) x $4 = $800 favourable. Hence the correct figure is $800 favourable, not $2,400.

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