Financial Performance Assessment 1 Tast 1.3

Hi Everyone,

I am in need of help for questions 1.9 and 1.3 from AAT assessment 1
I have an exam coming up on the 27th April and I'm hoping someone can enlighten me on explaining the calculations.

Question 1.3 is a follows:

Production Units: Budget Actual
64,000 67,000
Direct labour cost 5,760,000 5,895,000

Fixed overheads 3,840,000 3,950,000

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

Fixed overhead capacity?

Fixed overhead efficiency?


Best Answer

  • mike150185mike150185 KentPosts: 41
    Accepted Answer
    The fixed overhead capacity variance asks "were the number of hours worked higher or lower than expected?" In this case the budget was for 480,000 hours but 536,000 were worked - 56,000 more than budget which is a favourable variance. The absorption rate is £3,840,000 / 480,000 hours = £8/hour. 8 x 56,000 = £448,000

    The fixed overhead efficiency variance asks "did the workforce take more or less time than expected to produce the actual output?". If it takes 480,000 hours to produce 64,000 units (7½ hours per unit), it is expected that 67,000 units would take 502,500 hours. It actually took 536,000 hours which is an adverse variance of 33,500 hours x £8 = £268,000
    C200sp

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