=+12-28 KK Identifying favourable and unfavourable variances OBJECTIVES 3, 4 Firelli Ltd manufactures tyres for large car companies. It uses standard costing and allocates variable and fixed manufacturing overhead based on machine-hours. For each independent scenario given, indicate whether each of the manufacturing variances will be favourable or unfavourable or, in case of insufficient information, indicate ‘cannot be determined’.

Chapter 12: Flexible budgets, overhead cost variances and management control 497 M12_HORN3377_02_LT_C12.indd 497 2/09/13 3:50 PM Scenario Variable overhead spending variance Variable overhead efficiency variance Fixed overhead spending variance Fixed overhead productionvolume variance Production output is 5% more than budgeted, and actual fixed manufacturing overhead costs are 6% more than budgeted Production output is 10% more than budgeted; actual machine-hours are 5% less than budgeted Production output is 8% less than budgeted Actual machine-hours are 15% greater than flexible-budget machine-hours Relative to the flexible budget, actual machine-hours are 10% greater, and actual variable manufacturing overhead costs are 15% greater