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

F Budgeted standard total fixed overhead £180,000 Budgeted standard hours 10,000 Actual fixed overhead £170,000 Actual standard hours 11,000 Activity 11.4(a)

11.5.2 Fixed overhead variances As explained in previous chapters, certain expenses (including rents, rates and staff salaries) have all to be paid in the short-term irrespective of the level of activity, being described as ‘fixed’ overheads. Fixed overhead variances are divided between expenditure variances and volume variances. Expenditure variances simply compare what fixed costs we thought were likely to be absorbed compared with what fixed costs were actually absorbed. Regarding volume variances, fixed costs have to be absorbed by production and under standard costing, a standard amount of fixed overhead is assumed to apply to each unit produced. If the level of activity changes, this will affect the amount of fixed overhead recovered. The more that is produced, the more fixed overhead that is recovered, but if less is produced, less fixed overhead is recovered, resulting in a volume variance.

Activity 11.4

(a) and

(b) shows the way in which these variances are calculated.

11.3

(a) and here have split this between a £30,000 adverse expenditure variance and a £40,000 favourable efficiency variance, as shown in Figure 11.7.

Figure 11.7 Variable overhead variances for Company E Company E Variable overhead variances ATVO < STVO 190K < 200K

= 10K favourable Expenditure variance ATVO > AHSAR 190K > 160K

= 30K adverse Efciency variance AHSAR < STVO 160 < 200 40K favourable Chapter 11 standard costing 295 Calculate the fixed overhead expenditure variance for the company.