Fixed Overhead Volume Variance

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Debs2809
Debs2809 Registered Posts: 42 Regular contributor ⭐
Hi Folks

According to the AAT magazine Dec2006/jan 2007, Simon Deane has written an article titled Puzzled by variances.

He has stated that the Fixed Volume Variance is calculated by:
How many hrs should have been worked in Production(standard)
How many hrs were budgeted for production (budgeted) the difference is then multipiled by the budgeted overhead absorption rate.

But when I look at Past Papers the budgeted cost for production is compared to the actual cost for production multiplied by the budgeted overhead absorption rate.

Can someone advise please.:confused1:

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  • wolfe
    wolfe Registered Posts: 121 Dedicated contributor 🦉
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    hi Debs2809

    when the overheads are absorbed on unit basis the formula for overhead volume variance is :
    (ACTUAL OUTPUT-BUDGETED OUTPUT) X OAR

    but

    when the overheads are absorbed on hourly basis the formula for overhead volume variance is:
    (standard hrs for ACTUAL OUTPUT- budgeted hrs for BUDGETED OUTPUT)X OAR

    hope this helps
  • Londina
    Londina Registered Posts: 814 Epic contributor 🐘
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    ??

    I don't understand what are you talking about, if I want to calculate the overhead absorpionn rate, is only:

    OVERHEADS divided by MACHINE or LABOUR hour

    example £34913/10000 hours = £6.98 ph
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