Financial Performance: Fixed Overhead Efficiency

Production (units):
BUDGET- 64,000
ACTUAL- 67,000

Direct labour costs:
BUDGET- £5760,000
ACTUAL- £5896,000

Fixed overheads:
BUDGET- £3840,000
ACTUAL- £3950,000

Overheads absorbed on labour hour basis and the budget uses 480,000 labour hours.
The actual labour hours used to produce 67,000 units totalled 536,000 labour hours.

Please help!


  • bevh
    bevh Registered Posts: 3
    Try saying -

    X amount of units DID take ? Hours at standard rate
    X amount of units SHOULD take ? Hours at standard rate


    Work out the standard rate per hour first = budgeted total fixed overheads/budgeted labour hours (as its per labour hour) = £3840000/480000 = £8 per hour

    Then do-

    67000 units DID take 536000 hours at £8 = £4288000
    67000 units SHOULD have taken (480000/64000 = 7.5 hours per unit) 502500 hours at £8 = £4020000

    £4288000 - £4020000 = £268000 adverse (because it took more hours to produce the 67000 than it should)

    Hope this makes sense
  • gabriellenlewis
    gabriellenlewis AAT Student Posts: 129
    Thank you @bevh
  • Charlie1701
    Charlie1701 Registered Posts: 14
    Thank you
  • Charlie1701
    Charlie1701 Registered Posts: 14
    For the same question, parts a and b.

    Would you be able to show me how the Fixed Overhead Volume Varience is found
    and also the actual fixed production overhead incurred is please?
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