Fixed Overhead Volume Variance

Debs2809

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:

wolfe

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

??

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