Question:
Calculation of absorption costing fixed overhead variances
A company uses absorption costing for both internal and external reporting purposes as it has a considerable level of fixed production costs.
The following information has been recorded for the past year:
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Budgeted fixed production overheads
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£2 500 000
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Budgeted (Normal) activity level:
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|
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Units
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62 500 units
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Labour hours
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500 000 hours
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Actual fixed production overheads
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£2 890 350
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Actual level of activity:
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|
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Units produced
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70 000 units
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Labour hours
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525 000 hours
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Required:
(a) Calculate the fixed production overhead expenditure and volume variances and briefly explain what each variance shows.
(b) Calculate the fixed production overheard efficiency and capacity variances and briefly explain what each variance shows.