PEV fixed o/head volume sub variances question

Bryony

Hi

I am currently working through PEV Jun 07 exam and after considering Q 1.1 e) I am a bit confused.

With regards to the fixed overhead capacity and efficieny variances, can these be calculated if the overhead absorption rate is based on units?
If so would you consider the variances in terms of units?

I thought that the absorption base had to be based on hours for these to be considered.
But perhaps one could calculate these on labour hours used for production even if the absorption base is units..hmmm

Any clarity from all you clever clogs out there would be much appreciated :-)

Thanks
Bryony

SandyHood

When you absorb based on units you cannot have fixed overhead efficiency or capacity variances.

jow774

Sandy,

Can you give a simple way to remember Fixed Overhead Variances, I have got your notes from other posting but still cant help getting the volume and the capacity mixed up?

Sorry for being a bit thick, exam panic and all that.

SandyHood

1. If production is lower than budget

There will always be an adverse f o volume variance

There are more than one way to work out the value, one way is overhead absorbed per unit x difference between budgeted output and actual output.

2. If hours worked are lower than budgeted total hours

There will always be an adverse f o capacity variance

one way to work out the value is overhead absorbed per hour x difference between budgeted hours and actual hours.


3. If the standard hours (units produced x standard hours per unit) are lower than the actual hours

There will always be a favourable f o efficiency variance

SandyHood

volume
- how many did we produce (output) compared to budget output

capacity
- how much time was input into production compared to the budgeted time (labour time)

jow774

Thanks Sandy :-)

*Jo

Ditto the thanks Sandy,

I have been struggling with this for MAC.