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Hi Tutors,
could you help me with this question?
A manufacturing company operates a standard absorption costing system. Last month 25,000 production hours were budgted fixed production overhead cost was 125,000. Last month the actual hours worked were 24,000 and the standard hours for actual production were 27,000.
What was the fixed production overhead capacity variance for last month?
A. $5.000 Adverse
B. $5.000 Favourable
C. $10.000 Adverse
D. $10.000 FavourableThanks a lot
The standard cost per hour is 125,000/25,000 = $5
The actual hours were 24,000 and the budget hours were 25,000, therefore the capacity variance is (24,000 – 25,000) x $5 = $5,000 adverse.
I do suggest that you watch my free lectures on variances where this is all explained in detail.
My free lectures are a complete course for Paper F2 and cover everything needed to be able to pass the exam well.
Thanks for your reply soon,
But i still confuse, the actual is 24,000 less than the budget is 25,000.
So i think it should be 5,000 Favourable, is right?Could you explain more for me?
thanks alot
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