Variances: Sales & Fixed Overhead

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PAMDILL
PAMDILL Registered Posts: 721 Epic contributor 🐘
I can get my head round the material and labour variances okay but can't get the sales and fixed overhead variances sorted.

My question for fixed overhead variance is: When you are using absorption costing is your total fixed overhead variance Expenditure Variance plus Volume variance. If so: Why?

I now that the expenditure variance is the difference between how much you budgeted to spend in your fixed overheads and how much you did spend but why do you then add on the differences in the overheads absorbed?

I know that the differences in the absorbed overheads and how much was spent would move over from your costing accounts to your P&L?

Sales Variances:

I know there is the volume and price variance which together would show the total variance in price and profit margin (I think)

How do they then get shown in the operation statement when reconciling variances or are they shown separately?:001_wub:

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  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    is your total fixed overhead variance Expenditure Variance plus Volume variance.
    When you are using absorption costing is your total fixed overhead variance Expenditure Variance plus Volume variance. If so: Why?
    I answered a similar question on:
    http://forums.aat.org.uk/showpost.php?p=143232&postcount=3

    This is standard absorption costing so absorption is on standard hours produced (units produced x standard hours per unit)
    The total fixed overhead variance is
    Standard hours produced at standard rate per hour less actual cost

    The expenditure variance (difference between budgeted and actual overhead cost) is
    Budgeted hours at standard rate per hour less actual cost

    The volume variance is
    Standard hours produced at standard rate per hour less budgeted cost

    So the volume variance cancels out the part of the expenditure variance which is budgeted overheads less overhead absorbed (Standard hours produced at standard rate) leaving the total fixed overhead variance.
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    If you are looking at sales variances, I guess you must be doing MAC.

    There are different ways of putting them into a reconcilliation of budgeted and actual profit.
    I recommend that you list them with the cost variances to find the total adverse and total favourable variance.
    Then net them off to find the overall variance. (Total favourable less total adverse)
    If it is favourable add it to the budgeted profit and compare your calculated actual profit with the actual profit in a question.
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • PAMDILL
    PAMDILL Registered Posts: 721 Epic contributor 🐘
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    SandyHood wrote: »
    If you are looking at sales variances, I guess you must be doing MAC.

    There are different ways of putting them into a reconcilliation of budgeted and actual profit.
    I recommend that you list them with the cost variances to find the total adverse and total favourable variance.
    Then net them off to find the overall variance. (Total favourable less total adverse)
    If it is favourable add it to the budgeted profit and compare your calculated actual profit with the actual profit in a question.
    NO I am not doing MAC, it is in Kaplan's Unit 8 workbook and their pocket notes. If you are assuming that then does that mean it is not covered in Unit 8?
  • George Tse
    George Tse Registered Posts: 241 Dedicated contributor 🦉
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    Hi

    I dont fink sales varience will be in PEV, it says in the kaplan text book i fink that it is not in it but im not sure.
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    Sales variances are not in the standards for PEV (unit 8)
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • PAMDILL
    PAMDILL Registered Posts: 721 Epic contributor 🐘
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    SandyHood wrote: »
    Sales variances are not in the standards for PEV (unit 8)
    Well someone ought to tell Kaplan then!
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