Fixed Overhead Efficiency / Capacity Variances???

mrderek88

Hi folks

Looking for some help, yet again.

Im struggling a little bit in trying to figure out overhead efficiency variances. The capacity part is fine but Im getting stuck with efficiency.

The question is:

* Budgeted overheads are £80,000
* Budgeted output is 10,000 units and 5,000 labour hours
* Actual output is 8,000 units and 4,300 labour hours
* Actual overheads are £85,00

1) Calculate the fixed overhead efficiency variance?
2) Calculate the fixed overhead capacity variance?

I've managed to work out the capcaity side of it as £11,200 adverse
= (actual hours x BOAR (£16)) - budgeted overheads
= (4,300 x 16) - 80,000
= -11,200

Can anyone please help me?

Thanks

Derek

SandyHood

Well done Derek, over the years capacity has been the ratio candidates have found difficult to master. You calculated it well.

Efficiency is the measure of how well the hours were worked.
It took 4,300 hours to produce 8,000 units. The budget says 5,000 hours should be enough to produce 10,000. In other words 1 unit should take 0.5 hours.
So 8,000 units should require (8,000 x 0.5) hrs to make = 4,000 hours
Because the workforce needed 300 hours more they are considered inefficient
The variance is £16 x 300 = £4,800 adverse

mrderek88

Thanks Sandy - you're always reliable for an answer!!