PEV Section 1

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Why on the June 05 PEV paper when working out the fixed overhead volume variance does the answer multiply by the total (eg 5 hrs at £6)

On all papers they jusy multiply by thr price!!!!

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV Section 1

    Hi Pele

    On this paper it states what the fixed overheads are absorbed at standard rate.

    Eva :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV Section 1

    Pele

    There is a danger in looking at examiners' answers.
    They can use a variety of methods and this can lead to questions such as yours.

    Did he get the same Fixed Overhead volume variance by his method as you got by your method?

    It is the answer that matters. If the method you use gets you the right answer it is doing the job.

    I think the answer is £6,000 adverse
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV Section 1

    No i got a wrong answer. Simply because I multiplyed the difference by the unit price, and for some reason on this paper they are using the total cost.

    This is just for Volume variance though. For capacity and efficiency they have used unit cost
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV Section 1

    For anyone who can't remember which scenario was on June 2005, it was Model F and Model H stoves.

    Here 2 products were being made in the same department.
    The bold was quite deliberate, the fact that 2 products are being made makes this an unusal AAT exam scenario

    To find the budgeted overhead cost you need 2 times sums and then must add the totals together
      Model F has 5 hrs per unit and 10,000 were budgeted to be made
    50,000 hours
      Model H has 8 hrs per unit and 1,000 were budgeted to be made
    8,000hrs
      So there are 58,000 budgeted labour hours,& at an OAR of £6.00 per DLH
    Budgeted overheads of £348,000

    To find the standard overhead absorbed is virtually the same sum except that we are multiplying by actual rather than budgeted production
      Model F has 5 hrs per unit and 9,800 were made
    49,000 hours
      Model H has 8 hrs per unit and 1,000 were made
    8,000hrs
      So there are 57,000 standard labour hours,& at an OAR of £6.00 per DLH
    Standard overheads absorbed of £342,000

    The volume produced was less than the budget, so 1,000 fewer hours were absorbed. At £6.00 per hour this gives an adverse variance of £6,000.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV Section 1

    Pele
    The difference in units produced was that the actual production of Model F stoves was 200 lower than budget (and the Model H stoves were the same as budget)

    200 Model F stoves at £30.00 of overhead per stove would give you the £6,000 adverse volume variance.

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