PEV fixed o/head volume sub variances question

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Bryony
Bryony Registered Posts: 15 New contributor 🐸
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

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  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    When you absorb based on units you cannot have fixed overhead efficiency or capacity variances.
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • jow774
    jow774 Registered Posts: 465 Dedicated contributor 🦉
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    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
    SandyHood Registered, Moderator Posts: 2,034 mod
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    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
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    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)
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • jow774
    jow774 Registered Posts: 465 Dedicated contributor 🦉
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    Thanks Sandy :-)
  • *Jo
    *Jo Registered Posts: 509 Epic contributor 🐘
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    Ditto the thanks Sandy,

    I have been struggling with this for MAC. :)
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