Fixed Overhead Variances
anniebabe
Registered Posts: 595 Epic contributor 🐘
This maybe really simple but after having a couple of days off studying - my brain has stopped working
I am looking at Financial Performance Workbook - Osborne page 10
Question 3.4
You have been given the following information:
* Budgeted overheads are £120,000
* Budgeted output is 12,000 units and 4,000 labour hours
* Actual output is 11,400 units and 3,950 actual hours
* Actual overheads are £118,000
Complete the table to show the fixed overhead variances:
Expenditure
Capacity
Efficiency
Volume
My question is this -
How do you know how to work out the OAR - if it is not stated, ie labour hours, units etc.
I understand that you need to use the Budgeted overhead £120,000 and divide - but they do not indicate which figures to use. If what I am saying makes any sense.
I can see the answer and they have used 4,000 labour hours to get an OAR of £30.00, just need to get it straight in my head which one to choose - the hours or the units - as it doesnt always tell us.
Many thanks
I am looking at Financial Performance Workbook - Osborne page 10
Question 3.4
You have been given the following information:
* Budgeted overheads are £120,000
* Budgeted output is 12,000 units and 4,000 labour hours
* Actual output is 11,400 units and 3,950 actual hours
* Actual overheads are £118,000
Complete the table to show the fixed overhead variances:
Expenditure
Capacity
Efficiency
Volume
My question is this -
How do you know how to work out the OAR - if it is not stated, ie labour hours, units etc.
I understand that you need to use the Budgeted overhead £120,000 and divide - but they do not indicate which figures to use. If what I am saying makes any sense.
I can see the answer and they have used 4,000 labour hours to get an OAR of £30.00, just need to get it straight in my head which one to choose - the hours or the units - as it doesnt always tell us.
Many thanks
0
Comments
-
How do you know how to work out the OAR - if it is not stated, ie labour hours, units etc.
If you are asked to split the volume variance between capacity and efficiency, you cannot be using a units basis for the OAR.
That leaves only labour available.Sandy
sandy@sandyhood.com
www.sandyhood.com0 -
ok - thanks Sandy, I am sure I have already been told that at some point - but my mind was blank.
Thanks again.0 -
I have worked out the answer see below, hope this helps.
Actual production at Actual Cost (AA)
11400 Units 3950 hours = £118,000
Actual Production at Standard Cost (AS)
11400 Units 3950 hours x £30 per hours = £118,500
Standard production at Standed Cost (SS)
11400 Units / 3 units per hours = 3800 hours x £30 per hour = £114,000
Budget production at Budgeted Cost (BB)
12000 Units / 3 units per hour = 4000 hours x £30 per hour = £120,000
Fixed Overhead Expenditure Variance
BB £120,000
AA £118,000
= £ 2,000 F
Fixed Overhead Capacity Variance
AS £118,500
BB £120,000
= £ 1,500 A
Fixed Overhead Efficiency Variance
SS £114,000
AS £118,500
= £ 4,500 A
Fixed Overhead Volume Variance
SS £114,000
BB £120,000
= £ 6,000 A0 -
Hi Babsa
Thanks for trying to help - not sure why I am getting confused with the questions where it doesnt tell me the OAR (hours/units).
I am going to keep working on it today - I should know it by now - moving on to the ratios at college tmoz.0
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