Section A

ShelterAid NGO budgeted 2,000 hours to build temporary shelters, absorbing fixed overheads at $15 per hour. Due to volunteer shortages, they only worked 1,800 hours. What is the fixed overhead volume capacity variance?

Answer options:

$3,000 Favorable

$3,000 Adverse

$27,000 Adverse

$30,000 Favorable

How to approach this question

Compare Budgeted Hours to Actual Hours. Multiply the difference by the Standard Fixed Overhead Absorption Rate.

Full Answer

B.$3,000 Adverse✓ Correct

Fixed OH Capacity Variance = (Actual Hours - Budgeted Hours) * Standard Rate. (1,800 - 2,000) * $15 = 200 hours shortfall * $15 = $3,000 Adverse. The organization failed to utilize its planned capacity.

Common mistakes

Confusing capacity variance with efficiency variance or expenditure variance.

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Practice the full ACCA MA — Management Accounting Practice Exam 3

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