capacity variance

lindas1967
lindas1967 Registered Posts: 16 New contributor 🐸
can any one help please i have got stuck on how to work out capacity variance
question is
2 million dvd made takes 3 minutes
budget overhead is 250,000
capacity is 12,500 favourable
efficiency variance is 50,000 adverse
volume variance is 37,500 adverse
expenditure variance is 25,000 adverse
total fixed overhead is 62,500 adverse
actual produce is 1.7 million dvd
fault with dvd lead to a 30,000 cost for specialist
how do i work out the capacity variance please
thanks

Comments

  • oakley
    oakley Registered Posts: 73 Regular contributor ⭐
    prod cost hrs std cost/hr type
    2,000,000 250,000 100,000 2.5 budget
    1,700,000 237,500 95,000 2.5 actual

    Capacity Variance = Standard fixed overhead rate per hour * (Budgeted hours – Actual hours)

    std rate = £2.5 (worked out as budgeted overhead £250k / budgeted hours below)
    Budget Hours = 2,000,000 DVD's x 3 minutes each / 60 minutes per hour = 100,000 hours
    Actual Hours = unknown from info supplied

    The info states that the Capacity Variance is £12.5k favourable so
    variance £12,500 / std rate £2.50 = 5000 hours

    Summary
    Budgeted hours 100,000 at std rate £2.50 per hour = £250,000
    Actual hours 95,000 at std rate £2.50 per hour = £237,000
    Favourable Varaince £12,500

    or as per formula above £2.50 * (100,000 - 95,000) = £12,500
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