Which of the following statements are true? (i) A favourable...

Which of the following statements are true? (i) A favourable fixed overhead volume capacity variance occurs when actual hours of work are greater than budgeted hours of work (ii) A labour force that produces 5,000 standard hours of work in 5,500 actual hours will give a favourable fixed overhead volume efficiency variance (i) is true and (ii) is false Both are true Both are false (i) is false and (ii) is true

Which of the following statements are true?
(i) A favourable fixed overhead volume capacity variance occurs when actual hours of work are greater than budgeted hours of work
(ii) A labour force that produces 5,000 standard hours of work in 5,500 actual hours will give a favourable fixed overhead volume efficiency variance
(i) is true and (ii) is false
Both are true
Both are false
(i) is false and (ii) is true

Key Concepts

Standard Hours vs Actual Hours

Standard hours represent the quantity of work time expected to be used under normal conditions to produce a given level of output. In contrast, actual hours are the real hours worked. The comparison between these figures forms the basis for various efficiency and cost variances, highlighting performance differences that may affect cost control and operational effectiveness.

Favourable vs Unfavourable Variance

A variance is termed 'favourable' when the actual performance is better than the standard or budgeted performance, such as producing more output than planned or using fewer resources, which typically results in lower costs. Conversely, an 'unfavourable' variance occurs when actual performance falls short of expectations, indicating inefficiencies or higher costs.

Fixed Overhead Volume Variance

Fixed overhead volume variance arises in absorption costing when the level of production differs from the level of production expected (or budgeted). It measures the impact of operating at a different capacity than planned: when actual production exceeds the budget, the variance is usually favorable because more fixed overhead is absorbed than anticipated, and vice versa.

Variance Analysis

Variance analysis is a management accounting technique that involves comparing actual performance with budgeted or standard performance, identifying differences (variances), and analyzing the reasons behind those differences. It helps managers control costs and improve business operations by highlighting areas that deviate from expectations.

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