Fixed overhead expenditure — OpenTuition Forums

SSneha5y ago

Fixed overhead( 1 hour). $5.1 The fixed overhead charged to each unit of the product is based n a monthly variance on a monthly production of 2,000 units During october 2003 the actual production amouned to 2,150 uits and cost incrred were as follows Fixed overhead ( 2200 hours). $9,950 What was the fixed overhead expenditure variance Sir I used the equation Actual hours*actual rate - Standard rate* budgeted hours 9950-(5.1*2000) My answer was 250 favourable However the correct answer was 250 adverse I son't understand how it became adverse sir The actual amount seemed to be highed than what was planned so isn't is suppose to be favourable instead sir?

John MoffatTutor5y ago#1

Your 'equation' is not correct. The expenditure variance is the difference between the actual total fixed overheads (9,950) and the budgeted total fixed overheads (2,000 x $5.10 = 10,200). They spent more than was budgeted and the variance is therefore adverse. I suggest that you watch my free lectures on variance analysis.

SSneha5y ago#2

Sir you sort of just said tha 'budgeted total fixed overheads is 10200 and actual fixed overheads is 9950' So it actually shows that 9950( actual) is less than budgeted (10200) So how is that adverse sir because it means that the actual is less than budgeted

John MoffatTutor5y ago#3

I do apologise. Assuming that you copied the question correctly then the answer is 250 favourable (and not adverse). It seems that there is an error in your book. If the question was in the current edition of the BPP Revision Kit, then tell me which question and I will check it.

SSneha5y ago#4

Oh this was from the 2016-2017 BPP Revision kit Is this kit alright to study for this upcoming exam this year BecauseI found those questions much difficult than this years revision kit but I found it as good practise at the same time but I'm also concerned whether the style of the questions will be different compared to the actual exam because there a large significant differences in the way the current edition had styled their revision questions compared to the old revision kit

John MoffatTutor5y ago#5

The style of the questions has not changed since 2016-2017. However two new areas have been added to the syllabus. They are 'measures of average and dispersion' and 'the normal distribution'.