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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