Chapter 3 - Variable And Fixed Overheads Flashcards
What is variable overheads?
Indirect costs which vary in proportion to the volume of production or other output
How to calculate variable overheads?
Standard absorption (Standard rate x Standard hours)
Minus
Actual absorption (SR x AH) = EFFICIENCY
Actual absorption (SR x AH)
Minus
Actual expenditure = Expenditure
What does the variable overhead expenditure variance tell you? (Bottom)
Measures how much of the variance is caused by the difference between Standard Rate and Actual Rate.
What does the variable efficiency overhead tell you? (Top)
Measures how much of the variance is caused by the difference between Standard Hours used and Actual Hours used.
What is fixed overheads?
Indirect costs which do not vary in proportion to the volume of production.
How do you calculate fixed overhead marginal costing variance?
Budgeted expenditure
Minus
Actual expenditure
= Expenditure
What does the fixed overhead marginal costing tell you?
This measures the difference between the budgeted expenditure and the actual expenditure on fixed overheads in a given period.
What does TOTAL fixed overhead absorption variance tell you?
The difference between the actual expenditure on the fixed overheads and the amount of fixed overheads absorbed by actual output.
How to calculate absorption costing variance under units basis
1) budgeted fixed overheads / budget units = OAR
2) S - standard output X OAR
3) B - budget output X OAR
4) A - actual fixed overheads
Volume = 2-3 Expenditure = 3-4
How to calculate absorption costing variance under Hours basis?
1) budget fixed overheads / budget HOURS = OAR
2) S - (budget hours / budget output) X OAR
3) A - actual hours X OAR
4) B - budget hours X OAR
5) A - actual fixed overheads
Efficiency = 2-3 Capacity = 3-4 Expenditure = 4-5
What does the fixed expenditure variance tell you? (Absorption costing)
Difference between budgeted expenditure and actual expenditure on fixed overheads
What does the fixed volume variance tell you? (Absorption costing)
Difference between fixed overheads which would have been absorbed by the budgeted output and the fixed overhead absorbed by actual output.
What does the fixed efficiency variance tell you? (Absorption)
This shows how efficient or inefficient the use of resource used to measure the output was. (Example- number of hours used)
What does the fixed capacity variance tell you? (Absorption)
This shows the amount of resources used to measure the output. Example: hours
What order does the variances go in for hours Absorption basis?
Efficiency
Capacity
Expenditure
Efficiency plus capacity = Volume
Fixed overhead reconciliation -
How to calculate ‘budgeted / standard fixed cost for actual production’ (absorption)
Budgeted fixed overheads / budgeted units X actual units produced
Absorption rate on an hourly basis
Budgeted overheads / budgeted labour or machine hours
Absorption rate on units basis
Budgeted overheads / number of units
How to calculated fixed overhead expenditure variance?
Budgeted cost of fixed overheads
Minus
Actual cost of fixed overhead
How to calculate fixed overhead capacity variance?
Standard
Actual
Budget
Actual
Actual output X absorption rate
Minus
Budgeted output X absorption rate
How to calculate fixed over head efficiency variance
Standard
Actual
Budget
Actual
Standard hrs for actual output X absorption rate
Minus
Actual hours taken X absorption rate
Fixed overhead expenditure calculation
Budgeted overheads - actual overheads
Splitting variances -
Calculate the revised standard price (index formula)
Standard price £20
Actual price £25
Index was 100 when standard was set
Index was 110 when Material was purchased
110 new / 100 old X £20 standard
Splitting variances
Calculate revised standard price (index formula)
Standard rate £25
Old index 100
New index 143
25 price / 110 old X 143 new index
