PEV Fixed Overhead Variances

HayleyM Registered Posts: 63 πŸ’« 🐯 πŸ’«

I am just going over my notes on fixed overhead variances and I have managed to get myself confused somehow. Please can someone confirm whether the following calculations for each of the variances are correct?

Fixed Overhead expenditure variance:
(Budgeted units x absorption rate) - Actual fixed overhead

Fixed Overhead efficiency variance:
(Actual production x absorption rate) - (Budgeted production x absorption rate)

Total fixed overhead variance:
Actual fixed overhead -(actual units x standard hour x absorption rate)

Also, please could someone explain what the fixed overhead capacity variance and the fixed overhead volume variances are? My tutor didn't cover these variances and I only know about them because I have noticed people talking about them in other posts. Is this something that is covered in the PEV exams?

Thanks in advance :)


  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 πŸ’« 🐯 πŸ’«
    Hi Hayley,
    I have this in excel format so, not sure how it's going to read on here and can't seem to send excel sheets ?
    If it's confusing, forward your e-mail and I'll send you the file.

    Fixed Overhead Variances

    Total Fixed Overhead Variance

    Breaks down into Expenditure and Volume below.

    Fixed O/H Expediture Variance Fixed O/H Volume Variance
    BC-AC (AV-BV)*OAR per unit
    or (SH-BH)*OAR per unit

    Volume variance breaks down into efficiency and capacity below (when relating to labour)

    Fixed O/H Efficiency Variance Fixed O/H Capacity Variance
    (SH-AH)*OAR/Hour (AH-BH)*OAR/Hour

    Volume variance only broken down into efficiency and capacity, when relating to labour (hours)
    ie. Are they working efficiently ? Are they working to full capacity ?

    SC = Standard Cost
    AC = Actual Cost
    BC = Budgeted Cost
    AV = Actual Volume
    BV = Budgeted Volume
    SH = Standard Hours
    AH = Actual Hours
    BH = Budgeted Hours
    OAR = Overhead Absorbtion Rate
  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 πŸ’« 🐯 πŸ’«
    Yep, it's rubbish !
  • anniem
    anniem Registered Posts: 1,326
    I'm struggling with variances too - I keep getting them all the wrong way round; I chucked the towel in on a past paper yesterday.

    Anyone got any helpful ideas for 'locking them into your brain' ?????

    Anna x
    FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 πŸ’« 🐯 πŸ’«
    Try this ?
  • HayleyM
    HayleyM Registered Posts: 63 πŸ’« 🐯 πŸ’«
    Thanks Jimmyboy. That is a massive help :)
  • HayleyM
    HayleyM Registered Posts: 63 πŸ’« 🐯 πŸ’«
    My problem is that I just do not know what to revise for, for PEV. I know that you need to know the variances and the ratios. But other than that I just don't know what to revise. Has anyone got a list of some sort that they are working their way through?!

    Thanks :)
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