CIMA Managing Performance (E2) Practice Exam

Overhead expenditure variance measures whether the actual spending on overheads was in line with what was budgeted, isolating the effect of spending decisions from production levels. It is calculated as actual overhead minus budgeted overhead, meaning you compare what you actually spent to what you planned to spend, without considering how much you produced. This separation matters because volume changes (producing more or less) create a separate variance that affects how much overhead is absorbed into product costs, but the expenditure variance specifically reflects spending efficiency. For example, if you budgeted 100k for overhead and actually spent 110k, the expenditure variance is 10k adverse. If production was higher than planned and more overhead was absorbed, the total overhead variance could look different, but the expenditure variance itself remains the difference between actual and budgeted spending.