EFFICIENCY AND CAPACITY VARIANCES

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:08AM in AAT student discussion
I AM STRUGGLING WITH THE ABOVE WITH CALCULATIONS, THE FORMULA I KNOW, BUT CAN SOMEONE EXPLAIN BOTH FOR ME, WHEN ASKED TO CALCULATE, THERE IS SOMETHING YOU HAVE TO THINK ABOUT WHY CALCULATING IT. THANKS

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    EFFICIENCY AND CAPACITY VARIANCES

    Efficiency and capacith variances are come under F. O/H variance.<BR>My tutor taught us simple ship shape formula to remember for all the vaiances<BR><BR>formula is as follows:<BR><BR>Actual F.O/H Budgeted O/H Act@Std Std<BR>Amount given BH x OAR AH x OAR SH x OAR<BR>_________________ __________ ________<BR>EXpenditure Var Capacity Var Effi. Var<BR> ______________<BR> Volume Var <BR> _____________________<BR> F.O/H Total Cost Var<BR><BR>When you write this formula by hand it will look like ship or yacht shape.<BR>Thats why we call this ship shaped formula<BR><BR>Capacity variance is diff btn BO/H and Act@std Value if BO/H is more than the Act@Std then it is Adverse if it is vice versa then its favourble.<BR><BR>I hope this will give an idea of it.<BR><BR><BR>Email me when you required further information.<BR><BR>Abul<BR>abulh1@excite.com
  • System
    System Posts: 100,534 🤖 Admin 🤖
    EFFICIENCY AND CAPACITY VARIANCES

    Try to think of capacity as time<BR>and efficiency as the work done in the time<BR><BR>If you had a pile of exam papers to practice on and went down to a quiet spot to work on them, you may have a "budgeted output" to complete 3 exam papers in 9 hours.<BR><BR>Then while you are working away you find that you "produce 2 sets of answers in 5 hours"<BR><BR>The capacity variance will be adverse as the budgeted time was 9hours but the actual time was 5 hours<BR><BR>The efficiency variance would be favourable. You would expect the "output" of 2 answers to take 6 hours but it only took 5 hours.<BR><BR>I appreciate the value of learning formulas for some people, but I do not teach variances using formulas. I think that once you really understand what is going on, then you can start to put a value on it.<BR><BR><BR><a target=new class=ftalternatingbarlinklarge href="mailto:sandy.hood@chichester.ac.uk">sandy.hood@chichester.ac.uk</a><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    EFFICIENCY AND CAPACITY VARIANCES

    thanks alot appreciated, sandy your explanation is always great
  • System
    System Posts: 100,534 🤖 Admin 🤖
    EFFICIENCY AND CAPACITY VARIANCES

    I think it's worth noting the following:<BR>Efficiency variance will have the same explanation as labour or variable o/head variances<BR><BR>Capacity is slightly more difficult, if we work less hours than was budgeted for, the variance is adverse, many students, and not a few lecturewrs are uncertain about this. The reason is because we have failed to use the resources that were available, they could have been made available to someone else, for rent, or we could have made something else.<BR><BR>The net of efficiency and capacity is volume variance. This is also known as over/under absorption of fixed o/heads. The reason we need to calculate it is because we are treating a fixed cost as variable.

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