Fixed overhead was budgeted at £500,000 and 25,000 direct labour hours were budgeted. If the fixed overhead volume variance was £12,000 favourable and the fixed overhead spending variance was £16,000 unfavourable, fixed overhead applied must be
A)£516,000.
B)£512,000.
C)£504,000.
D)£528,000.

Question

Quizplus · Accepted Answer

Fixed overhead applied can be found by adding the fixed overhead budgeted amount to the fixed overhead volume variance and then subtracting the fixed overhead spending variance. Thus, £500,000 + £12,000 - £16,000 = £496,000. However, the correct calculation should be: Fixed overhead applied = Budgeted fixed overhead + Volume variance = £500,000 + £12,000 = £512,000, because the spending variance affects the actual expenses, not the applied overhead.

Fixed Overhead Was Budgeted at £500,000 and 25,000 Direct Labour