Help needed on variances

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gingervicki
gingervicki 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

  • welshboy
    welshboy 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
  • PAMDILL
    PAMDILL 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
  • Londina
    Londina 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
  • gingervicki
    gingervicki 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:
  • wolfe
    wolfe 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)
  • Londina
    Londina Registered Posts: 814 Epic contributor 🐘
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    oh many thanks for that, will now study it!!
  • mark130273
    mark130273 Registered Posts: 4,234 Beyond epic contributor 🧙‍♂️
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    wolfe...........this is the first time ive understood the volume variance !!!

    well done ..
  • Londina
    Londina 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?
  • gingervicki
    gingervicki 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:
  • wolfe
    wolfe 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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