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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Marlow Ltd budgeted 8,000 units with variable overhead of $5 per unit and fixed overhead of $40,000. Actual output was 9,000 units and actual total overhead was $88,000. What is the overhead variance against the flexed budget?

The variance is $3,000 adverse. The flexed budget for 9,000 units is $45,000 variable plus $40,000 fixed, totalling $85,000. Actual overhead of $88,000 is $3,000 higher. Comparing with the original $80,000 budget would wrongly include a volume effect.

  1. A$3,000 adverseCorrect
  2. B$3,000 favourable
  3. C$8,000 adverse
  4. D$5,000 adverse

Explanation

Flexed budget = 9,000 x $5 + $40,000 = $85,000. Actual $88,000 exceeds this by $3,000, so adverse. Using the original budget of $80,000 gives $8,000 adverse, which wrongly includes the volume effect.

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