ExpertEasy2 marksMultiple Choice
ACCA · Question 27 · E. Standard costing
A private hospital uses standard costing for its surgical wards. The standard variable overhead rate is $50 per nursing hour.
During a busy month, 2,000 nursing hours were actually worked, but the actual variable overheads incurred amounted to $105,000.
What is the variable overhead expenditure variance?
A private hospital uses standard costing for its surgical wards. The standard variable overhead rate is $50 per nursing hour.
During a busy month, 2,000 nursing hours were actually worked, but the actual variable overheads incurred amounted to $105,000.
What is the variable overhead expenditure variance?
Answer options:
A.
$5,000 Favorable
B.
$5,000 Adverse
C.
$10,000 Adverse
D.
$105,000 Adverse
How to approach this question
Compare the actual variable overheads with what they should have been for the actual hours worked (Actual Hours * Standard Rate).
Full Answer
B.$5,000 Adverse✓ Correct
Variable Overhead Expenditure Variance = (Actual Hours * Standard Rate) - Actual Cost.
Standard cost for 2,000 hours = 2,000 * $50 = $100,000.
Actual cost = $105,000.
Because the actual cost is $5,000 higher than the standard allowance for those hours, the variance is $5,000 Adverse.
Common mistakes
Confusing expenditure variance with efficiency variance, or getting the Favorable/Adverse direction wrong.
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