Fixed overhead variances (easy)
Anzelari
Registered Posts: 8 New contributor 🐸
Hi everyone,
Hope the following will help you calculate fixed overhead variance very quickly.
After 2 days of trying to remember all the formula used to calculate the variances. I remembered what our professor was saying in the university: "Mathematics do not have to remember they have to get it using the logic".
And I found the logic in fixed overhead calculations. Just remember easy formulas SA = (SB) + (BA) and SB = (SAA) + (AAB), where
B  Budgeted overheads, S  Standard overheads, A Actual overheads, AA Absorbed overheads
B and A are usually known, Standard overheads = OAR x standard hours (calculated using flexing budget rules), AA = actual hours x OAR
please, see the picture for more information
Hope the following will help you calculate fixed overhead variance very quickly.
After 2 days of trying to remember all the formula used to calculate the variances. I remembered what our professor was saying in the university: "Mathematics do not have to remember they have to get it using the logic".
And I found the logic in fixed overhead calculations. Just remember easy formulas SA = (SB) + (BA) and SB = (SAA) + (AAB), where
B  Budgeted overheads, S  Standard overheads, A Actual overheads, AA Absorbed overheads
B and A are usually known, Standard overheads = OAR x standard hours (calculated using flexing budget rules), AA = actual hours x OAR
please, see the picture for more information
1
Comments


0 
0 
That's one way . . .
I prefer  Total OH Variance is the difference between what it did cost and what it should have cost.
This total variance breaks down into expenditure variance (which ignores the 'should have' bit) and volume variance.
Volume then breaks down again into efficiency and capacity.
Capacity Variance is the one that usually causes problems as it is not so instinctive. If we actually use fewer hours than the original base budget, this is Adverse because we ae not fully using those assets we have invested in.0 
Hi, mcchoc. Thank you for your comment! How do you remember how to calculate all these variances?
0 
As mcchoc says, look at the difference between what should happen and what actually happened.
In your example, each unit should take 0.005 hours (500/100,000) and you recover £100 overhead per hour (£50,000/500)
So, 96,000 units should take 480 hours (96,000 x 0.005)
They actually took 510 hours, 30 hours too long
This is an efficiency problem, which reduces your overhead recovery by £3,000 (30 hrs x £100/hr)0 
Foolproof method for Materials and Labour variances
Create three columns BudgetActualStandard
Under each title, tear the data to shreds, ie kg/unit, £/kg, total Kg, total material cost; hours/unit, £/labour hour, total labour hours, total labour cost.
Remember  the Standard Budget is just the original budget flexed by the new Volume, so we flex the quantities of materials and labour hours, but NOT the unit price.
0
Categories
 All Categories
 1.2K Books to buy and sell
 2.3K General discussion
 18.9K For AAT students
 234 NEW! Qualifications 2022
 133 General Qualifications 2022 discussion
 7 AAT Level 2 Certificate in Accounting
 31 AAT Level 3 Diploma in Accounting
 55 AAT Level 4 Diploma in Professional Accounting
 8.9K For accounting professionals
 23 coronavirus (Covid19)
 272 VAT
 91 Software
 272 Tax
 135 Bookkeeping
 7.3K General accounting discussion
 201 AAT member discussion (AATQB, MAAT, FMAAT and AAT Licensed Accountants and Bookkeepers)
 3.8K For everyone
 39 AAT news and announcements
 352 Feedback for AAT
 2.8K Chat and offtopic discussion
 586 Job postings
 17 Who can benefit from AAT?
 36 Where can AAT take me?
 44 Getting started with AAT
 26 Finding an AAT training provider
 47 Distance learning and other ways to study AAT
 25 Apprenticeships
 65 AAT membership