# Pev june 05 task 1.3b

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Registered Posts: 8 New contributor 🐸
Hi

I do not know how to answer this question. Can anyone explain to me in simple english pls.

Thanks

• Registered Posts: 17 New contributor 🐸
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Hia

Im just doing that paper now i dont know where to start either its confussing with the two models isnt it. How did you deal with the overheads? Do you have to split the fixed costs over the two models?
• Registered, Moderator Posts: 2,034 mod
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Treat the fixed overheads as a single amount in all the variances.

Model F production x hrs per unit x OAR per hour
Model F 10,000 units 5 hours £6.00 per hour = £300,000
Model H n1,000 units 8 hours £6.00 per hour =n£48,000
Total Budgeted fixed overhead Model Fodel F £348,000
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered, Moderator Posts: 2,034 mod
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Absorbed (or standard cost for actual production of) fixed overhead cost
Model F production x hrs per unit x OAR per hour
Model F 9,800 units 5 hours £6.00 per hour = £294,000
Model H 1,000 units 8 hours £6.00 per hour =nn£48,000
Total Absorbed fixed overhead Model Fodenn £342,000
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered, Moderator Posts: 2,034 mod
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Standard fixed overhead cost based on hours actually worked
Model F hours worked x OAR per hour
Total overhead 58,600 hours £6.00 per hour = £351,600

And Actual overhead incurred = £360,000
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered, Moderator Posts: 2,034 mod
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So now the variances come out reasonably well
Expenditure
Budget m£348,000
Actual ...£360,000

Volume
Absorbed mm£342,000
Budget mmm.£348,000
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered, Moderator Posts: 2,034 mod
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And the volume variance then splits into Capacity and Efficiency

Capacity
Standard fixed overhead cost based on hours actually worked mm£351,600
Budget mm.....................................................................m.£348,000
Variance mmm.....................................................................m£3,600 (favourable)

Efficiency
Absorbedmmmmmmmmmm....mmmmmmmmmmmmmmmmmmmm mm£342,000
Standard fixed overhead cost based on hours actually worked mm£351,600