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John Moffat.
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- December 20, 2021 at 10:49 am #644592
This question is according to example 6 (chapter 14) on ABC variance.
Is it true that total variance is calculated by taking total costs and divide them by total production units?
Total variance:
Actual overhead————————————————$126720
Standard overhead ($120000 / 48000) x 50400——-$126000
Variance———————————————————-$720But in example 6 we are particularly asked Overhead expenditure and Overhead efficiency variances for despatches that means we have to calculate it by taking total overheads divided by total number of despatches (rather than total units).
This means that we have to calculate expenditure and efficiency variances based on a despatch basis (rather than total units basis).
Standard OH per despatch = $120000 / 2000 = $60 per depatch
OH expenditure variance:
Standard cost = $60 x 2200 despatch = $132000
Actual cost—–=—————————–= $126720
variance——–=——————————= $5280OH efficiency variance:
Standard cost = $60 x 2200 despatch = $132000
Standard cost = $60 x 2100 despatch = $126000
variance——–=——————————= $6000According to my understanding both the costs in the overhead efficiency variance is standard cost calculated using standard cost per despatch of $60. (is that right?)
Are my explanations and calculations correct?
December 20, 2021 at 2:57 pm #644615They are correct, but I really do not know why you are asking because I work through the example in the lecture and the answer is also printed in the lecture notes!
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