Variable production overhead is absorbed at £3 per labour hour (2 hours per unit gives a standard of £6 per unit). In the period 2,000 units were made and 4,050 hours were worked, with variable overhead costs of £12,600. What is the variable overhead expenditure variance?
Answer and explanation
Correct answer: C. £450 adverse
- Step 1: Standard overhead for the hours worked = 4,050 × £3 = £12,150.
- Step 2: Actual overhead = £12,600.
- Step 3: Expenditure variance = £12,150 − £12,600 = £450 adverse.
Answer
£450 adverse.
Why not the others: £600 adverse: This is the total variable overhead variance (£12,000 − £12,600). £150 adverse: This is the variable overhead efficiency variance. £450 favourable: The actual overhead of £12,600 exceeds £12,150, so it is adverse.
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