ICAEW BIP · Chapter 9 · Question 7 of 13
Budgeted fixed production overheads are £120,000 and budgeted output is 10,000 units. Fixed overheads are absorbed per unit. Actual output was 10,800 units and actual fixed overheads were £126,500. What is the fixed overhead volume variance under absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) £9,600 favourable
Explanation
Absorption rate = £120,000 / 10,000 = £12 per unit. Volume variance = (actual output 10,800 - budgeted output 10,000) x £12 = £9,600 favourable. Producing more than budget means more fixed overhead is absorbed. The expenditure variance is £6,500 adverse (budget £120,000 vs actual £126,500).
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