Struggling PEV Technit

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Crees
Crees Registered Posts: 8 New contributor 🐸
in General accounting discussion
confused - my notes say overhead expenditure variance is calculated as 'budget cost less actual cost' .... yet, exam June 2005 section 1.1 b) ii) clearly has it the other way which results in a favourable variance as opposed to advers. Maybe i am not reading it correctly?

Anybody else care to confirm or explain? Thanks.

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  • sdv
    sdv Registered Posts: 585 Epic contributor 🐘
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    Crees wrote: »
    confused - my notes say overhead expenditure variance is calculated as 'budget cost less actual cost' .... yet, exam June 2005 section 1.1 b) ii) clearly has it the other way which results in a favourable variance as opposed to advers. Maybe i am not reading it correctly?

    Anybody else care to confirm or explain? Thanks.

    It doesn't really matter whether you calculate

    360,000 (A) less 348,000 (B) = 12,000 Adverse; OR

    348,000 (B) less 360,000 (A) = 12,000 Adverse

    What matters is your understanding.

    If actual costs are greater then budgeted then the varience = Adverse and vice versa
  • Crees
    Crees Registered Posts: 8 New contributor 🐸
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    Hi SDV,

    Thanks for that - i guess that is where i constantly fall down, i understand the principle - however i also am very much a 'processing' kind of person. Once there is a formulea, it helps me to remember how to find the solutions.

    As you say, the point is that one is expecting the cost to be £348k and it actually was £360k, which results in an adverse outcome.

    Have a great evening. :-)

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