A company uses standard MARGINAL costing. Budgeted fixed production overheads were $120,000, based on budgeted production of 10,000 units. Actual production was 9,400 units and actual fixed production overheads were $118,000. What fixed overhead variance will appear in the statement reconciling budgeted and actual profit?

Correct answer: B) $2,000 favourable

Explanation

Under marginal costing, fixed overheads are not absorbed into units, so there is no volume variance and the only fixed overhead variance is the expenditure variance: budgeted $120,000 - actual $118,000 = $2,000 favourable, because less was spent than budgeted. $7,200 adverse is the absorption costing volume variance ((9,400 - 10,000) x $12) and $5,200 adverse is the absorption costing total variance ($112,800 absorbed - $118,000 actual); neither arises in a marginal costing reconciliation.