Chapter 17: Cost Variances For Variable And Fixed Overhead

Question 1

Spending Variance variable overhead

Answer 1

PV = AQ x (AP - SP)

AP = overhead rate used to allocate variable overhead

SP = budgeted overhead rate

AQ = actual quantity of allocation base used during the period

Shows if the overhead rate was higher or lower than budgeted

• maybe higher overhead cost (spending)
• maybe more overhead used per allocation base (efficiency)

Question 2

Efficiency variance variable overhead

Answer 2

EV = SP x (AQ - SQ)

SP = budgeted overhead rate

AQ = actual quantity of allocation base used during the period

SQ = standard quantity of allocation base had actual output been known

Shows if more or less of the allocation base was used

Question 3

Fixed overhead spending Variance

Answer 3

Aka fixed overhead price variance or fixed overhead budget variance

Actual fixed costs incurred - budgeted fixed overhead costs

Question 4

Fixed overhead volume variance using budgeted production

Answer 4

When budgeted production used to find overhead rate

Aka production volume variance

= (Units produced - budgeted production) x budgeted overhead rate

Unfavorable when actual production < budgeted production: more units were able to be produced with same fixed resources. Lower profitability

Favorable when actual production > budgeted production: same fixed resources spread over more units. Higher profitability

Question 5

Fixed overhead volume variance using factory capacity

Answer 5

When factory capacity has been used to figure budgeted overhead rate

= (Units produced - factory capacity) x budgeted overhead rate

Actual production almost always below capacity = variance shows the idle capacity (typically unfavorable)

Idle capacity variance

If above capacity (downtime was less than expected) then favorable