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Dear sir
I am doing a question from my BPP textbook and the answer states that where budgeted hours of work is 5000 hours and actual hours of work is 5500 hours this gives a fixed production o/h capacity variance of 500 favourable. Is this a mistake? I thought this would be adverse and therefore my ultimate answer taking into consideration the $ rate is wrong.
Thanks
BPP is correct – it is favourable.
The easiest way of remembering it is to say that if they get more hours of work then they will be able to produce more units, which is good because it would produce more profit.
For a full explanation of the rule and the reason for it, you need to watch my free lectures on variances.
(Our lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.)
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