Fixed overhead expenditure variance
Company F provides the following information relating to its fixed overheads for
November. Overheads are absorbed on the basis of standard hours:

Question

Accepted Answer

The fixed overhead expenditure variance for Company F is £28,000 (favourable).
Comment:
Firstly it is necessary to calculate the standard hour rate, which is the rate at which
fixed overhead is absorbed per standard hour. For Company F, the standard hour
rate is:

[latex]\frac{£180,000}{10,000} = £18[/latex] per standard hour

For every standard hour worked, £18 of fixed overheads is absorbed.
Secondly, this rate per standard hour must be applied to the actual number of standard
hours worked, and the answer compared to the actual fixed overheads in order
to assess the level of variance:

	£
Actual fixed overhead absorbed	170,000
Actual hours at standard absorption rate (11,000 × £18)	198,000
Favourable expenditure variance	28,000

n other words, at the level of output actually achieved – 11,000 standard hours – the
fixed overhead absorbed should have been £198,000. In fact, only £170,000 was
incurred, resulting in a favourable balance of £28,000.

Question 11.4[a]: Fixed overhead expenditure variance Company F provides the f...

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