Is the total overhead variance from the previous question favourable or unfavourable?

Unfavourable

Question

Is the total overhead variance from the previous question favourable or unfavourable?

Unfavourable

BlackTom AI · Accepted Answer

Total overhead variance equals the difference between actual overheads incurred and the overheads that were budgeted or absorbed at standard/expected activity. Relevant concepts: if actual overhead > budgeted/applied overhead the variance is unfavourable (adverse); if actual overhead < budgeted/applied the variance is favourable. Step-by-step reasoning and calculation method: 1. Formula: Total overhead variance = Actual overheads incurred − Budgeted/applied (standard) overheads. Some texts use Applied − Actual; the sign convention matters, but the interpretation is the same: positive excess of actual costs is unfavourable. 2. Determine values from the previous question (the previous solution must have given actual and budgeted/applied amounts or a computed variance). For example, if Actual overheads = £12,000 and Budgeted/applied overheads = £11,200 then: - Total overhead variance = £12,000 − £11,200 = £800. 3. Interpret the sign: Because actual > budgeted, the variance of +£800 indicates extra cost above expectation; this is unfavourable. Why this answer is correct: - An unfavourable variance means the company spent more on overheads than planned, reducing profit relative to budget. The positive difference (actual minus budget) is the clear indicator of an unfavourable outcome. - The multiple-choice alternative would be “Favourable,” which would only be correct if actual overheads were less than budgeted (actual − budget < 0). Because the previously computed variance shows actuals exceeding the standard, “Favourable” does not apply. Conclusion: Given that the actual overheads exceeded the budgeted/applied overheads in the prior calculation, the total overhead variance is Unfavourable, which matches the provided answer.

Is the total overhead variance from the previous question favourable or unfavourable? UnfavourableMultiple dropdown selections

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