ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
Ketter Ltd has a standard variable overhead rate of $6 per labour hour. Actual output required 2,000 standard hours, but 2,100 hours were worked. The variable overhead expenditure variance was $630 favourable. What was the actual variable overhead cost incurred?
Actual variable overhead cost was $11,970. The 2,100 hours worked at the standard $6 rate would cost $12,600, and the $630 favourable expenditure variance means the business spent $630 less than that. The standard hours for output are irrelevant to this calculation.
- A$11,970Correct
- B$13,230
- C$11,370
- D$12,570
Explanation
Actual hours at standard rate = 2,100 × $6 = $12,600. A favourable expenditure variance means actual cost was lower: $12,600 − $630 = $11,970. Using standard hours ($12,000) gives $11,370, while adding the variance gives $13,230.
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