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The following information is available for Wick Co for month 1
Budgeted
Fixed overheads $20,000 to be absorbed at $10/hr
Time to make one unit 4 hoursActual
Fixed overheads $23,000
Time taken to make 550 units 2,475 hoursRequired:
Calculate the fixed overhead (to the nearest whole number):
(i) Expenditure variance and state if it is favourable or adverse (2 marks)
$
(ii) Capacity variance and state if it is favourable or adverse. (2.5 marks)
S
(iii) Efficiency variance and state if it is favourable or adverse.hi sir can u plz explain how to solve the capacity variance. there is no clear explanation in the exam kit thx in advance
They budgeted on having 20,000/10 = 2,000 hours available.
They actual got 2,475 hours.
So they for 475 more hours than they were expecting (which on its own means they could produce more) and so the capacity variance is 475 x $10 = $4,750 (favourable).
Have you watched my free lectures on fixed overhead variances? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well 🙂
thx sir i got it. yes i have watched the variances videos they were so helpful:)
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