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A company has the following information in relation to fixed overhead variances for the month:
Fixed overhead efficiency variance
£3,000 favourable
Fixed overhead capacity variance
£10,000 adverse
Fixed overhead expenditure variance
£5,000 favourableFixed overheads are absorbed on a labour hours basis
Which of the following statements are not correct?
(i) Fixed overheads were under absorbed by £2,000.
(ii) The number of labour hours available were more than budgeted.
(iii) The number of labour hours available were less than budgeted.
(iv) Fixed overheads were over absorbed by £8,000.
A. (i) and (ii).
B. (iii) and (iv).
C. (i) and (iii).
D. (ii) and (iv).
Hello Mr. John, am confused with 1 & 4 statement/ over or under absorption, C is correct answer.
this is ok to me = The number of labour hours available were less than budgeted, this is incorrect statement as we have efficiency variance is favourable.Because of the expenditure variance, the actual fixed overheads were 5,000 less than budgeted.
Because of the efficiency and capacity variances (in total, the volume variance), the amount absorbed was 7,000 more than budgeted.
Therefore the over-absorption was 7,000 – 5,000 = 2,000.
If you have typed the question and answer correctly, then the answer in your book is wrong 🙂
Hello Mr. John, I double checked the question and answer I copied correctly,
answer C. i and iii.
so,
per question:
Which of the following statements are not correct?iii) is an incorrect as question demands but i) is a correct information so, acc. question it should be iv)
I believe as well maybe printing mistake.
thanks for your help.
(i) is wrong – there is an over absorption of 2,000 (not an under absorption).
(ii) is wrong – because the capacity variance is adverse, there were fewer hours available than were budgeted.
(ii) is correct (see the above)
(iv) is wrong – see what I have written for (i)
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