If actual fixed overhead was £120,000 and there was a £2,600 favourable spending variance and a £2,000 unfavourable volume variance, budgeted fixed overhead must have been
A)£124,600.
B)£122,000.
C)£120,000.
D)£122,600.

Question

Quizplus · Accepted Answer

Fixed Overhead Variance = Actual Fixed Overhead - Budgeted Fixed Overhead

Spending Variance = Actual Fixed Overhead - (Actual Hours x Fixed Overhead Rate)
Favourable Spending Variance = £2,600

Volume Variance = (Actual Hours - Budgeted Hours) x Fixed Overhead Rate
Unfavourable Volume Variance = £2,000

We can use these equations to solve for the budgeted fixed overhead:

£2,600 = £120,000 - (Actual Hours x Fixed Overhead Rate)

£2,000 = (Actual Hours - Budgeted Hours) x Fixed Overhead Rate

Solving for Fixed Overhead Rate in both equations and setting them equal, we get:

(£120,000 - £2,600) / Actual Hours = (Actual Hours - Budgeted Hours) x Fixed Overhead Rate

(£117,400 / Actual Hours) = (Actual Hours - Budgeted Hours) x (£117,400 / Budgeted Hours)

Simplifying and solving for Budgeted Fixed Overhead, we get:

Budgeted Fixed Overhead = Actual Fixed Overhead - Fixed Overhead Variance
Budgeted Fixed Overhead = £120,000 - (£2,600 - £2,000)
Budgeted Fixed Overhead = £122,600

If Actual Fixed Overhead Was £120,000 and There Was a £2,600