Question

Assume that the amount of one of a company’s fixed expenses in its flexible budget is $46,000. The actual amount of the expense is $49,400 and the amount in the company’s planning budget is $46,000. The spending variance for this expense is:

Multiple Choice

• $0.

• $3,400 U.

• $6,800 U.

• $3,400 F.

Answer 1

The fixed overhead spending variance is the difference between actual and budgeted fixed overhead costs.

Here,Actual fixed overhead cost = $49,400

   Budgeted fixed overhead cost = $46,000

Therefore, Fixed Overhead Spending Variance = Actual - Budgeted = $49,400 - $46,000 = $3,400

Now, for deciding favourable(F) or unfavourable(U), if actual cost incurred is more than budgeted cost then it leads to unfavourable or adverse variance. Favourable situation is when actual cost incurred is less than budgeted cost.

So, the correct answer is $3,400 U.