# 1 More Standard Costing & Variance Analysis Week 10.

## Presentation on theme: "1 More Standard Costing & Variance Analysis Week 10."— Presentation transcript:

1 More Standard Costing & Variance Analysis Week 10

2 Fixed Overhead Variances With Fixed Overheads we use BUDGETED fixed overheads Fixed Overheads are absorbed into units of output Total variance : Difference between actual fixed oh and absorbed fixed oh (ie under- or over- absorbed fixed oh) Expenditure variance : difference between budgeted fixed oh and actual fixed oh Volume variance : difference between budgeted production volume and actual production volume X std absorption rate per UNIT

3 Fixed Overhead Variances Scenario Product X Budgeted output = 1,000 Std time to produce a unit = 2 hours Budgeted fixed oh (FO) = £20,000 Therefore: fixed oh absorption rate (FOAR) per unit = 20,000 = £20 1,000

4 Fixed Overhead Variances Scenario Actual Data Fixed Overhead = £20,450 Actual Output = 1,100 units Actual hours worked = 2,300

5 Total Variance Actual fixed oh = 20,450 Absorbed fixed oh (1,100 units X FOAR £20) =22,000 Variance 1,550 (F) (ie £1,550 of fixed oh OVERabsorbed)

6 Expenditure Variance (this is the easy one) Budgeted fixed oh = 20,000 Actual fixed oh =20,450 Variance 450 (A)

7 Volume Variance (Budgeted output – Act output) X FOAR (1,000 – 1,100) X 20 = 2,000 (F) Summary Expenditure 450 (A) Volume2,000 (F) Total1,550 (F) BUT……..

8 Fixed Overhead Volume Variance – Sub Variances Volume Variance can be split into Efficiency variance Capacity variance We have FOAR per UNIT, need to calculate FOAR per HOUR FOAR per hour = Budgeted Fixed OH Budgeted hours (1,000 X2) = 20,000/2,000 = £10

9 Fixed Overhead Volume Variance – Sub Variances Efficiency (Std hrs – Act hrs) X FOAR per hr = (2,200 – 2,300) X 10 = 1,000 (A) Capacity (Budgeted hrs – Actual hrs) X FOAR = (2,000 – 2,300) X 10 = 3,000 (F) Volume 2,000 (F)

10 Fixed Overhead Volume Variance – Sub Variances NOTES Notes 1 Std hrs : Std time per unit = 2 hrs 1,100 units actually made Therefore Std hrs = 2 X 1,100 = 2,200 Notes 2 Budgeted hours = capacity Here 2,000 hrs were budgeted for but actual hours exceeded that so effectively exceeded capacity

11 Back to Acme Blocks Fixed & Variable overheads Budgeted production = 1,000 units (blocks) Budgeted fixed oheads = £0.30 per unit Budgeted variable oheads = £0.10 per unit Budgeted fixed oh absorption rate (hourly) 50 hours @ £6.00 per hour = 300 Budgeted variable oh absorption rate (hourly) 50 hours @ £2.00 per hour = 100

12 Acme Blocks – Actual Data Fixed overheads 68 hours @ £6.20 = £421.60 Variable overheads 68 hours @ £1.80 = £122.40 Note 10 hours idle

13 Acme Block - Analysis Total Variance 1,200 units should cost (1,200 X 10p) = 120.00 Actual cost = 122.40 Variance 2.40 (A)

14 Sub Variances Expenditure variance Productive hours (68-10) = 58 58 hrs should incur (58 X 2) = 116.00 Actual overheads = 122.40 Variance 6.40 (A) Efficiency Variance (Std hrs – Productive hrs) X VOAR If 1,000 units budgeted to take 50 hrs, Then 1,200 units should take 60 hrs (60 – 58) X 2 = 4.00 (F) Summary 6.40 (A) + 4.00 (F) = 2.40 (A)