PEV Help please

System

HI
I have been reading the notes on the Dec 06 from the AAT and have found them helpful, however I am stuck on why in the fixed over head variances that for the volume variance you use 0.75p and the other questions you use £3.00! Could any one help me please as I thought I had mastered these but now I am not so sure.

Thank you

Cat12

System

Re:PEV Help please

Cat1

I used £3.00 in my answer.
But you can find the correct answer using £0.75 as well.

The conventional approach to overhead absorption under standard costing is:
standard cost of overheads for actual production = hrs per unit x rate per hour x units produced
In this case

the hrs per unit are .025 hrs

the rate per hour is £3.00

and

the units produced are 117,600

As well as this

the budgeted production of units is 112,000

So you can find the volume variance by saying

we produced 117,600 -112,000 = 5,600 more units than budgeted

Each unit has 0.25 standard hours

5,600 units x 0.25 hrs = 1,400 standard hours have been produced more than budget (favourable variance)

Each hr we absorb £3.00 of overhead

So we have a fixed overhead volume variance which is favourable and worth 1,400 x £3.00 per hour = £4,200

System

Re:PEV Help please

But you are just as correct to say:

We produced 5,600 more units than budgeted

Each unit absorbs 0.25 hrs x £3.00 per hr of overhead = £0.75 per unit

5,600 x £0.75 = £4,200

Two different sums in one way, but actually the same sum done in a different order.

sandy.hood@chichester.ac.uk

System

Re:PEV Help please

That is great it makes it clear now.
Thank you for taking time out of your weekend to help me.

Cat12