COST ACCOUNTING
FLEXIBLE BUDGETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Actual variable overhead rate is higher than standard variable overhead rate
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Actual variable overhead rate is lower than standard variable overhead rate
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Actual variable overhead is lower than standard variable overhead
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Actual variable overhead is higher than standard variable overhead
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Detailed explanation-1: -Variable overhead spending variance is favorable if the actual costs of indirect materials-for example, paint and consumables such as oil and grease-are lower than the standard or budgeted variable overheads. It is unfavorable if the actual costs are higher than the budgeted costs.
Detailed explanation-2: -A favorable variance means that the actual hours worked were less than the budgeted hours, resulting in the application of the standard overhead rate across fewer hours, resulting in less expense being incurred.
Detailed explanation-3: -Variable overhead efficiency variance is a measure of the difference between the actual costs to manufacture a product and the costs that the business entity budgeted for it. Thus, it can arise from a difference in productive efficiency.
Detailed explanation-4: -For a given level of production output for a product over a given period of time, the variable overhead spending variance is basically the difference between what the variable production overheads were supposed to cost and how much they actually ended up costing.
Detailed explanation-5: -The difference between actual variable overhead and budgeted variable overhead based upon actual hours is referred to as the variable overhead efficiency variance.