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Misty Co’s budgetary control report for last month is as follows:
——————————— Fixed budget — Flexed budget — Actual results
Direct costs —————– 61,100 ———– 64,155 ————- 67,130
Production overhead —– 55,000 ———– 56,700 ————- 54,950
Other overhead ———— 10,000 ———– 10,000 ————- 11,500Totals ————————126,100 ———- 130,855 ———— 133,580
What was the Volume Variance for Last month?
1. $4,755 (A)
2. $2,725 (A)
3. $4,755 (F)
4. $2,725 (F)What was the Expenditure Variance for Last Month?
1. $7,480 (F)
2. $2,725 (F)
3. $7,480 (A)
4. $2,725 (A)I wasn’t sure how to approach this question because although I know to calculate Sales Volume variances and Fixed Overhead Expenditure Variances, i’m not sure what ‘Volume Variances’ and ‘Expenditure Variances’ mean in this context.
There is no specification on if the Overheads in the question are Fixed or Variable. Could you explain what a volume and expenditure variance mean here and how they’re to be calculated?Because this question does not specify, it must be relating to the total costs.
The total costs were budgeted as 126,100. If the only thing that had changed had been the level of activity then the total costs would have been 130,855 (as per the flexed budget). Therefore the volume variance is the difference of 4,755 (adverse).
Although the total cost should have been 130,855 for the actual level of activity, the actual cost was 133,580 and the difference is therefore an expenditure variance.
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