ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
Marlow Co uses absorption costing. Budgeted fixed overheads were $90,000 for 15,000 units, giving an absorption rate of $6 per unit. Actual output was 14,200 units. What is the fixed overhead volume variance?
The fixed overhead volume variance is $4,800 adverse. Actual output was 800 units below the budget of 15,000, and at the standard absorption rate of $6 per unit this means $4,800 of fixed overhead was under-absorbed.
- A$4,800 adverseCorrect
- B$4,800 favourable
- C$800 adverse
- D$90,000 adverse
Explanation
Volume variance = (actual output - budgeted output) x standard rate = (14,200 - 15,000) x $6 = $4,800. Output was below budget, so under-absorption occurs and it is adverse. Using 800 units alone ignores the rate.
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