Fixed Overhead Volume Variance

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:26AM in AAT student discussion
Can someone please confirm the formula for calculating this? I am very confused....

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Fixed Overhead Volume Variance

    (Standard hours - Budgeted hours) X OAR

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Fixed Overhead Volume Variance

    The book I have shows the Volume Variance as OAR x (Actual output - Budgeted Output) I am confused by the Actual output where you have shown it as Standard hours?

    Has anyone completed the PEV December 2003 paper? Garforth Cookridge and Co, it's based on flights and flight hours. The volume variance for this paper has really confused me. I'd appreciate any help!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Fixed Overhead Volume Variance

    Hi

    The variances are to be absorbed on either Labour or Machine hours not Outputs. Is that where you are going wrong?

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Fixed Overhead Volume Variance

    No, I have used hours to calculate this. The question has the following data: Budgeted flying hours 672 for 168 flights. Actual flying hours 768 for 160 flights. Standard flying hours 640 for 160 flights.
    Using the formula from Osborne books this would be Budgeted hours 672 - Actual hours 768 X OAR. But this is not the answer....

    OK, I have now gone through this again and I think I understand. If I am using an absorption based on hours I have to apply standard hours to the Budgeted and Actual outputs, not the hours that are quoted in the question, so with the standard hours being 4 per flight this will make 4 x budgeted output 168 and 4 x actual output 160.

    What I find confusing is when you standardise the hours when you already have actual hours in the question... will I ever get this right ?!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Fixed Overhead Volume Variance

    All you need do is change your Actual hours to Standard hours:

    (Standard hours - Budgeted hours) X OAR

    (640 - 672) x £112.50 = £3,600 (A)

    What this tells you is that you have under performed or that you have overbudgeted in the first instance.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Fixed Overhead Volume Variance

    Thanks Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Fixed Overhead Volume Variance
    intermediate struggler wrote:
    What I find confusing is when you standardise the hours when you already have actual hours in the question... will I ever get this right ?!

    Ok, all you are doing here is "Flexing" the orignal budget.

    i.e. you budget for 1,000 output but your actual output is 1,200. All standard hours do is revise your inital buget now that you have the actual data.

    The variance you were calculating was the Capacity variance, using the budgeted hours and actual hours.

    Regards

    Dean

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