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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Marlow Ltd budgeted to produce 4,000 units in the period, with budgeted fixed overheads of $60,000. Actual production was 4,300 units. Actual fixed overheads were $61,000. Using absorption costing with the rate per unit, what is the total fixed overhead volume variance?

The fixed overhead volume variance is $4,500 favourable. The absorption rate is $15 per unit, so 4,300 units absorb $64,500, which is $4,500 more than the $60,000 budget. Producing more than budgeted over-absorbs fixed overhead, giving a favourable variance.

  1. A$4,500 favourableCorrect
  2. B$4,500 adverse
  3. C$1,000 adverse
  4. D$5,500 favourable

Explanation

Absorption rate = $60,000/4,000 = $15 per unit. Absorbed = 4,300 x $15 = $64,500. Budgeted fixed overhead is $60,000, so the volume variance is $64,500 - $60,000 = $4,500 favourable. The $5,500 figure wrongly compares absorbed with actual cost, giving the total under-/over-absorption.

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