variances help please

variances help please

I hate formulas, so I try to attach some meaning to the variances and remember them that way.<BR><BR>Volume means output, so compares budgeted units to actual units, any difference being valued at the standard fixed overheads per unit. Producing more units than expected is a good thing (they can hopefully be sold on at a profit), so actual > budget means a favourable variance. An alternative calculation compares budgeted with standard hours, and values the difference at the standard fixed overhead rate per hour. Since budgeted hours are just budgeted output x std hours per unit, and standard hours are just actual output x std hours per unit, the same comparison is effectively being made.<BR><BR>Think of capacity and efficiency as explanations for the volume variance - producing more units may be due to longer hours, or maybe due to working more quickly.<BR><BR>Capacity measures how long the labour force worked. This is a period comparison, and is not related to output, so the comparison is budgeted hours to actual hours, the difference being valued at the standard fixed overhead rate per hour. More hours than expected here is a favourable effect - it means that the workers have worked for longer than we thought them capable.<BR><BR>Efficiency measures how quickly the labour force worked. This does depend upon output achieved, so the correct comparison is standard hours to actual hours, the difference again being valued at the standard fixed overhead rate per hour. Since speed is the issue here, more hours than expected is an adverse effect.<BR><BR>Hope that helps. Ultimately, the secret with variances is practice - do as many questions as you can, and it eventually sinks in.<BR><BR>Best of luck,<BR><BR>Andrew Harrington.

variances help please

thanks for all the help

variances help please

Lynsey,<BR><BR>could you please send me a copy of your chart as well, it would be appreciated.