Variances

System

Hi Everyone

I'm not sure if I'm having another thick moment or not but I'll ask the question anyway.

Can someone please explain why most variances involve taking the actual amounts from the standard amounts, yet the Overhead Volume Variance and the Overhead Capacity are the other way around :roll:

Not sure if this is corret or if I have just picked it up incorrectly.

Thanks

System

Re:Variances

Think about the thing you are doing rather than the sums.

Volume variance is the difference between what we produced and what we budgeted to produce.
So there is no better reason than that for saying:
how much overhead have we absorbed based on the actual output take away how much overhead had we budgeted for.

Similarly the capacity variance is the difference between the hours worked and the hours budgeted for.
How much is the overhead absorbed on the actual hours worked? take away how much overhead had we budgeted for.

System

Re:Variances

Thanks

System

Re:Variances

Not sure if your aware of the phnemonics for the ohead variances

Silly =Standard
Bloody =Budgets
Variance =Volume variance
x BOAR
Self =Standard
Addressed =Actual
Envelope =Efficiancy
x BOAR
A = Actual
B = Budgeted
C = Capacity
xBOAR

Also if the top line is bigger than the bottom line (Standard is bigger than Actual for example for efficiancy then the variance is always favorable, and vice versa, this works for all of the them)