Financial Performance: Fixed Overhead Efficiency

gabriellenlewis

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

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

gabriellenlewis

Thank you @bevh

Charlie1701

Thank you

Charlie1701

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?