Home For AAT student members AQ 2013 AAT Level 4 (Level 8 in Scotland)

Fixed Overhead Capacity / Efficiency Variances

dpwdpw New MemberRegistered Posts: 14
Can anybody explain these to me.
Task 3 on the CBA
The Financial Performance book by Kaplan is no help

Comments

  • katie2008katie2008 Trusted Regular Registered Posts: 294
    Ok so im sure blobby or avic will correct me if im wrong:

    Fixed overheads

    Capacity:

    This compares the actual hours worked with budgeted hours.

    It is calculated by:

    Budgeted hours x standard rate
    Actual hours x standard rate

    For example: A company budgets to use 2000 hours at a standard rate of 7.00 per hour
    Actual hours worked were 2200 hours at 7.00 per hour. This would be calculated

    2000 x 7 = 14,000

    2200 x 7 = 15,400

    Variance of £1,400



    Efficiency:

    All products take different times to produce. This variance calculates how hard they have been working. if we aim to produce 500 units at 3.5hrs each..

    Actual hours x standard rate (you may already have this from standard rate)
    Standard hours that should have been worked x standard rate

    2000 x 7 = 14,000 (Actual)
    1750 x 7 = 12,250

    Hope this helps a little!
  • dpwdpw New Member Registered Posts: 14
    more info, I have the answers but not the method

    Budgeted overheads are £50,000
    Budgeted output 5,000 units and 50,000 labour hours
    Actual output is 4,000 units and 43,000 labour hours
    Actual overheads are £55,000

    Q1. The fixed overhead efficiency variance is ?
    Q2. The fixed overhead capacity variance is ?
  • dpwdpw New Member Registered Posts: 14
    Thanks Katie,
    but I can't see how you get the Efficiency variance?
  • katie2008katie2008 Trusted Regular Registered Posts: 294
    The fixed overhead efficiency is 3000 adverse (see below)

    The fixed overhead capacity is 7000 adverse (see below)


    Efficiency: first off calculate 50,000hrs/5000 units = 10 hrs per unit
    The standard rate is 1.00 as £50,000/50000 units is 1.00

    Actual hours worked at standard rate
    43000 hours x 1.00 = 43,000

    Should have been
    10 (hrs/unit) x 4000 units x 1.00 = 40,000

    Difference of 3,000. Adverse as we have actually used 10.75hrs/ unit (calculated 43000/4000.


    Capacity:

    budgeted hours at standard rate
    50,000 x 1.00 = 50,000

    actual hours worked at standard rate
    43,000 x 1.00 = 43,000


    Hope this helps :)
  • sdvsdv Experienced Mentor Registered Posts: 585
    dpw wrote: »
    more info, I have the answers but not the method

    Budgeted overheads are £50,000
    Budgeted output 5,000 units and 50,000 labour hours
    Actual output is 4,000 units and 43,000 labour hours
    Actual overheads are £55,000

    Q1. The fixed overhead efficiency variance is ?
    Q2. The fixed overhead capacity variance is ?


    Let's deal with Q2 first?

    what is your capacity? ie budgeted hours = 50,000 hrs
    How many hours have used? actual hrs = 43,000 hrs

    varience = 7000 hrs is this more or less then CAPACITY? Therefore 7000 hrs adverse

    Q1 Efficiency variency?

    how efficient were you in producing your produc?

    work out how many hours do you expect to make a single product? 50 000 hrs / 5000 units = 10 hrs per unit

    to produce 4000 units how many hours should you have used? 4000 x 10 = 40 000 hours

    hou many hours you have actually taken to produce 4000 units = 43 000 hours

    varience is 3 000 hours. were you efficient or inefficient? = therefore 3 000 hrs adverse

    to work out monetory value you will need to multiply by standard hourly rate.
  • dpwdpw New Member Registered Posts: 14
    Thanks!
  • katie2008katie2008 Trusted Regular Registered Posts: 294
    its ok, glad it helped.

    I have my financial performance exam in 36 hours from now, (second time around) and have spent forever trying to remember these!
  • Jonno1Jonno1 Feels At Home Registered Posts: 63
    Sandy Hood did a good paper explaining in layman's terms the various variances. I accessed it when I was revising for management accounting papers late last year. Type her name into the search engine to find her posts.
  • jiltjilt Font Of All Knowledge Registered Posts: 2,903
    Jonno1 wrote: »
    Sandy Hood did a good paper explaining in layman's terms the various variances. I accessed it when I was revising for management accounting papers late last year. Type her name into the search engine to find her posts.

    Just for future reference Jonno, Sandy is a he :001_smile:
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