Capacity-based variance of fixed overhead is computed as:
A(Actual − Budgeted) × Output
B(Actual − Standard) × Rate
C(Budgeted hours − Actual hours) × Rate
D(Budgeted − Actual) × Output
Answer & Solution
Correct answer: C. (Budgeted hours − Actual hours) × Rate
1. Fixed overhead capacity variance measures how well the firm used its planned capacity.
2. The formula compares budgeted hours against actual hours, valued at the standard fixed-overhead rate.
3. Substituting symbolically: (Budgeted − Actual) × Rate.
4. A negative result indicates under-utilisation of capacity.
_Source: ICAI BoS Inter Paper 3, Ch 4 "Overheads", §4.6.2 ¶2_
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