Section A

A public desalination plant calculates its fixed overhead volume capacity variance to be Favorable.

What does a Favorable fixed overhead volume capacity variance indicate?

Answer options:

The plant spent less money on fixed overheads than budgeted.

The plant produced more units per hour than standard.

The plant worked more hours than originally budgeted.

The plant sold more units than it produced.

How to approach this question

Break down the fixed overhead volume variance. It splits into Capacity (did we work the hours we planned?) and Efficiency (did we produce what we should have in those hours?).

Full Answer

C.The plant worked more hours than originally budgeted.✓ Correct

The fixed overhead volume variance is split into two sub-variances: Capacity and Efficiency. The Capacity variance measures whether the actual hours worked were more or less than the budgeted hours. A favorable capacity variance means the plant operated for more hours than budgeted, thereby absorbing more fixed overheads than planned.

Common mistakes

Confusing capacity variance (hours worked vs budgeted) with efficiency variance (output achieved in those hours).

Question 26 All questions Question 28

Practice the full ACCA MA — Management Accounting Practice Exam 6

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