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Could you please help me understand the following question:
A new machine is purchased which is more expensive but requires less labour to operate per unit.
What is the effect on fixed overhead expenditure variance and fixed overhead volume variance? Adverse or Favorable
Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA publishers – they have answers and explanations.
If the machine is more expensive then there will be more depreciation and therefore an adverse expense variance.
Since it requires less labour, they will be able to produce more and therefore there will be a favourable volume variance.I read the answer but I didn’t understand it. I haven’t studied depreciation before so I don’t know how it works. Could you please explain how it works?
Suppose a machine costs $100,000 and is expected to last for 5 years.
It is therefore effectively costing the company 100,000/5 = $20,000 a year to use.
The $20,000 a year is the depreciation expense and is a fixed cost.
You are not asked to calculate the depreciation in Paper MA. If you want to know more then watch the Paper FA lectures on Non-current assets – but you will not need more details for Paper MA questions.
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