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Fixed Overheads were absorbed last month using a rate of $5.00 per labour hour. Budgeted Labour hours were 22000 and actual labour hours were 24000. The fixed OH expenditure variance was $6000 adverse.
What was the actual cost of fixed OH for the month?
Sir the correct answer is 116000My working was Fixed OH expenditure= [Actual Rate-Standard rate] x actual hours worked
So answer is coming as $126000.
6000=[x-5]x24000I suggest that you watch the lecture again because your ‘formula’ for the fixed overhead expenditure variance is wrong and is not what I show in my lecture.
The budgeted overheads were 22,000 x $5 – $110,000.
Therefore the actual fixed overheads are 110,000 + 6,000 = $116,000
Expenditure variance formula is Actual expenditure – Budgeted expenditure?
Right? Sometimes there is oar and sometimes not. I get confuse. The lecture i saw of yours you didnt use oar in itOne more problem! Sir i remember you said expenditure is dependant on the labour hours worked something like that. Can you tell me again?
The expenditure variance for fixed overheads is always the difference between the actual total and the budget total (whether it is marginal or absorption costing).
You are confusing it with the volume variance (which is only relevant if it is absorption costing). If the question required the volume variance to be analysed into the capacity and efficiency variances, then (and only then) the labour hours would be relevant.
Again, I do suggest that you watch the lecture again. You cannot expect me to type out the lecture here 🙂
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