ACCA MA Syllabus E. Standard Costing - Fixed overhead total, expenditure, volume, capacity and efficiency variances - Notes 5 / 8
The fixed production overhead total variance can be subdivided as follows:
| fixed overhead total variance = | overhead incurred | $x |
| overhead absorbed | $x | |
| -------- | ||
| fix overhead total variance | $x (f/a) | |
| ===== | ||
| fixed overhead expenditure variance = | budgeted overhead expenditure | $x |
| actual overhead expenditure | $x | |
| ------- | ||
| fix overhead expenditure variance | $x (f/a) | |
| ===== | ||
| fixed overhead volume variance = | actual units produced | x units |
| budgeted units produced | x units | |
| ---------- | ||
| volume variance in units | x units (f/a) | |
| x standard rate per unit | $x | |
| ----------- | ||
| volume variance in $ | $x (f/a) | |
| ======= |
The volume efficiency variance is calculated in the same way as the labour efficiency variance.
| fixed overhead vol efficiency variance = | actual units shd have taken | x hrs |
| actual units did take | x hrs | |
| ----------- | ||
| vol efficiency variance in hrs | x hrs (f/a) | |
| x standard oar rate per hr | $x | |
| ---------- | ||
| vol efficiency variance in $ | $x (f/a) | |
| ======= |
The volume capacity variance is the difference between the budgeted hours of work and the actual active hours of work (excluding any idle time).
| fixed overhead vol capacity variance = | budgeted hours of work | x hrs |
| actual hours of work | x hrs | |
| ----------- | ||
| vol capacity variance in hrs | x hrs (f/a) | |
| x standard oar rate per hr | $x | |
| ---------- | ||
| vol capacity variance in $ | $x (f/a) | |
| ======= |
Illustration
Budgeted production 8,700 units
Actual production 8,900 units
Budgeted fixed overhead/unit 5 hours @ $3/hours = $15/unit
Actual hours worked 44,100
Actual fixed overhead expenditure $134,074
What is the fixed overhead expenditure variance according to marginal costing?
Budgeted fixed overhead 8,700 units x $15/unit = $130,500
Actual fixed overhead incurred $134,074Fixed overhead expenditure variance is $3,574 Adverse (We paid more than we originally budgeted to)
What is the fixed production volume variance according to absorption costing?
Budgeted production 8,700 units
Actual production 8,900 unitsFixed production volume variance 200 units x $15/unit = $3,000 Favourable (We were able to produce more than we had budgeted to)
What is the fixed production volume efficiency variance according to absorption costing?
8,900 units should take 5 hours each = 44,500 hours
8,900 units did take 44,100 hoursFixed production volume efficiency variance is 400 hours x $3/hour = $1,200 Favourable (We did take less time than we should have taken)
What is the fixed production volume capacity variance according to absorption costing?
Original budgeted hours (8,700 units x 5 hours/unit) = 43,500 hours
Actual hours 44,100Fixed production volume capacity variance is 600 hours x $3/hour = $1,800 Favourable (We are able to work more than we had budgeted to, so we are happy and our variance is favourable)