PEV fixed o/head volume sub variances question
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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
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
0
Comments

When you absorb based on units you cannot have fixed overhead efficiency or capacity variances.Sandy
sandy@sandyhood.com
www.sandyhood.com0 
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.0 
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 varianceSandy
sandy@sandyhood.com
www.sandyhood.com0 
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.com0 
Thanks Sandy :)0

Ditto the thanks Sandy,
I have been struggling with this for MAC.0
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