ExpertMedium2 marksShort Answer
ACCA · Question 28 · Syllabus E: Standard costing
A solar panel factory uses absorption costing.
Budgeted production: 10,000 panels.
Standard fixed overhead rate: $15 per panel.
Actual production: 11,500 panels.
Actual fixed overheads: $160,000.
Calculate the Fixed Overhead Volume Variance. (Enter as a positive number followed by A or F, e.g., 5000A or 5000F)
A solar panel factory uses absorption costing.
Budgeted production: 10,000 panels.
Standard fixed overhead rate: $15 per panel.
Actual production: 11,500 panels.
Actual fixed overheads: $160,000.
Calculate the Fixed Overhead Volume Variance. (Enter as a positive number followed by A or F, e.g., 5000A or 5000F)
How to approach this question
Volume variance compares Budgeted Production to Actual Production, multiplied by the Standard Rate per unit.
Full Answer
Fixed Overhead Volume Variance measures the effect of producing a different number of units than budgeted.
Formula: (Actual Production - Budgeted Production) × Standard Fixed Overhead Rate per unit.
Variance = (11,500 - 10,000) × $15 = 1,500 × $15 = $22,500.
Because they produced MORE units than budgeted, they absorbed more overheads, making it a Favorable variance (22500F).
Common mistakes
Calculating the total fixed overhead variance (comparing absorbed to actual) instead of just the volume variance.
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