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
