# Help needed on variances

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Registered Posts: 87 Regular contributor ⭐
Hi i thought i had this sorted with my variances on -
standard
absorbed
budgeted
actual

but ive come a cropper at fixed overhead variances.......
has anyone got any rules or things to help me remember what figures i put in them??

im struggling with price/rate and usage/efficiency ones a bit too. its all getting a little too complex and i dont want to over think it all

Thanks

vicki:001_unsure::001_unsure:

## Comments

• Registered Posts: 82 Regular contributor ⭐
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Hi,

PAUS - Has helped me

Price variances use actual quantities

Usage Variances use standard prices

Hope this helps

Matt
• Registered Posts: 721 Epic contributor 🐘
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Have a look on student section for the posts Sandy Hood left for me. They are a great help
• Registered Posts: 814 Epic contributor 🐘
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Mac dec 2006

I'm totally confused again over fixed overhead variances.

Section 2 of MAC dec 2006, task 2.1b, point (v) requested to calculate the efficiency variance, the result is £62500 adverse, but I have no idea how to get that amount!!

Can someone have a look and please let me know what's the actual and standards amounts in order to get the £62500 A?

many thanks

http://www.aat.org.uk/servlet/file/MAC-questions.pdf?ITEM_ENT_ID=12775&download=1
• Registered Posts: 87 Regular contributor ⭐
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i think im getting the hang of it after reading sandys post (thanks Padmill)

i have a template drawn up that i keep trying to memorise, its remembering to times it all by the oar to convert it in to money.

Thanks, anymore suggestions are still welcomed

vicki:001_smile:
• Registered Posts: 121 Dedicated contributor 🦉
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Londina
the fixed overhead volume variance is calculated using the following formula:
(STANDARD HOURS FOR ACTUAL PRODUCTION -ACTUAL HOURS) X OAR

the standard hours for actual production calculation:
budgeted hours / bugeted units= budgeted (standard) hours per unit
20,000 hours/ 200,000 units= 0.1 hours per unit

if the STANDARD HOURS PER UNIT are multiplied with the ACTUAL PRODUCTION, this will give the STANDARD HOURS FOR ACTUAL PRODUCTION
0.1X190,000=19,000 HOURS

ACTUAL HOURS:
this is given in the standard cost cars as 20,000 hours

OAR:
oar=bugeted overheads/ budgeted activity

the budgeted activity can be machine hours, labour hours or units.in this case overheads are absorbed on labour hour basis so
0ar= £1250,000/20,000 labour hour= £62.5 per labour hour

thus the variance is
(19,000 hours - 20,000 hours) £62.5 = £62,500 (A)
• Registered Posts: 814 Epic contributor 🐘
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oh many thanks for that, will now study it!!
• Registered Posts: 4,234 Beyond epic contributor 🧙‍♂️
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wolfe...........this is the first time ive understood the volume variance !!!

well done ..
• Registered Posts: 814 Epic contributor 🐘
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wolfe wrote: »
the budgeted activity can be machine hours, labour hours or units.in this case overheads are absorbed on labour hour basis so
0ar= £1250,000/20,000 labour hour= £62.5 per labour hour

therefore to calculate the OAR, I have always to use the budget overheads, not the standard (or flexed) like for the other calculation of variances, example labour/material?
• Registered Posts: 87 Regular contributor ⭐
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yes OAR= budgeted Fixed costs/Budgeted activity

its making a little more sense the more i see ppls comments

:001_smile:
• Registered Posts: 121 Dedicated contributor 🦉
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yepp gingervicki is right. the oar also called the budgeted oar is calculated on budegeted figures of overheads and activity. this infact causes under or over absorption of overheads when the actual overheads or activity is different from the budgeted.

ps: if the budgeted overheads are not given you can always calculate it by multiplying the oar and the budgeted activity.
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