ExpertHard2 marksMultiple Choice
ACCA · Question 30 · Standard costing
A manufacturing plant has a budgeted fixed overhead of $100,000 and budgeted production of 10,000 units (each taking 2 hours).
Actual production was 11,000 units, taking 21,000 hours.
What is the fixed overhead volume capacity variance?
A manufacturing plant has a budgeted fixed overhead of $100,000 and budgeted production of 10,000 units (each taking 2 hours).
Actual production was 11,000 units, taking 21,000 hours.
What is the fixed overhead volume capacity variance?
Answer options:
A.
$10,000 Favorable
B.
$5,000 Favorable
C.
$5,000 Adverse
D.
$10,000 Adverse
How to approach this question
Capacity variance = (Actual Hours - Budgeted Hours) * Standard Fixed Overhead Rate per Hour. If actual hours > budgeted hours, it is favorable (more capacity utilized).
Full Answer
B.$5,000 Favorable✓ Correct
Budgeted hours = 10,000 units * 2 hrs = 20,000 hrs.
Standard rate per hour = $100,000 / 20,000 hrs = $5/hr.
Actual hours = 21,000 hrs.
Capacity variance = (21,000 - 20,000) * $5 = $5,000 Favorable (because they utilized more capacity than planned).
Common mistakes
Confusing capacity variance with efficiency variance or total volume variance.
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