The fixed overhead expenditure variance was $2,000 favourable, and actual fixed overheads were $58,000. Budgeted output was 12,000 units, with fixed overheads absorbed per unit. Actual output was 11,400 units. What is the fixed overhead volume variance?

Correct answer: A) $3,000 adverse

Explanation

A favourable expenditure variance means actual was less than budget, so budgeted fixed overheads = 58,000 + 2,000 = $60,000. OAR = 60,000 / 12,000 = $5 per unit. Volume variance = (11,400 - 12,000) x 5 = $3,000 adverse. Calculating the OAR from actual overheads (58,000 / 12,000) gives $2,900, which is wrong.