ExpertMedium2 marksShort Answer
ACCA · Question 30 · Standard Costing
A textile manufacturer has a budgeted fixed overhead of $80,000 and budgeted labor hours of 8,000. During the period, actual labor hours worked were 8,500.
Calculate the fixed overhead capacity variance. State your answer as a number followed by 'A' or 'F' (e.g., 5000 F).
A textile manufacturer has a budgeted fixed overhead of $80,000 and budgeted labor hours of 8,000. During the period, actual labor hours worked were 8,500.
Calculate the fixed overhead capacity variance. State your answer as a number followed by 'A' or 'F' (e.g., 5000 F).
How to approach this question
1. Calculate the standard fixed overhead absorption rate (OAR) per hour. 2. Find the difference between actual hours worked and budgeted hours. 3. Multiply the difference by the OAR.
Full Answer
Standard OAR = $80,000 / 8,000 hours = $10 per hour.
Difference in hours = 8,500 actual - 8,000 budgeted = 500 hours.
Because the factory worked more hours than budgeted, capacity was utilized better than expected, making it Favorable.
Capacity variance = 500 hours × $10 = $5,000 Favorable.
Common mistakes
Confusing capacity variance with efficiency or volume variance.
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