ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
Torrin Co uses absorption costing and a standard fixed overhead absorption rate of $8 per labour hour. Budgeted output was 5,000 units at 2 labour hours per unit. Actual fixed overheads incurred were $84,500. What is the fixed overhead expenditure variance?
The fixed overhead expenditure variance is $4,500 adverse. Budgeted fixed overhead is 5,000 units x 2 hours x $8, which equals $80,000, and actual spending was $84,500. Spending more than budget gives an adverse variance of $4,500.
- A$4,500 adverseCorrect
- B$4,500 favourable
- C$10,000 adverse
- D$5,500 adverse
Explanation
Budgeted fixed overhead = 5,000 x 2 x $8 = $80,000. Actual $84,500 exceeds budget by $4,500, so the expenditure variance is $4,500 adverse. Option $10,000 is wrong because it compares to a different base; the expenditure variance uses budget, not absorbed, cost.
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