# Financial Performance: Fixed Overhead Efficiency

AAT Student Posts: 129
Production (units):
BUDGET- 64,000
ACTUAL- 67,000

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

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.

• 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

Therefore

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
• AAT Student Posts: 129
Thank you @bevh
• Registered Posts: 14
Thank you
• 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