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I saw ur lecture on fixed overhead variance but I needed to ask whether these are statements correct or not. PLEASE CORRECT ME!
1) You said that expenditure variance see whether we have overspent or not the budgeted FOH but what actually caused this overspent?
2) The Fixed overhead volume shows that with more production we will get more FOH because of using absorption costing where each unit produced charged $15 per unit.
3) The Fixed overhead capacity shows that as we get more labour then we have more hours available for production BUT plz correct me that we get favourable variance because with more actual hours we can produce more units.
4) The Fixed overhead efficiency shows whether our labour is working efficiently by taking less hours to produce or not.
5) under/over absorbed FOH is the difference between actual FOH and standard FOH with actual production.
6) Total variance of $574 (A) is actually the under-absorbed overhead as compared to actual FOH.
Thanks for your time 🙂
1 All variances only tell us that we have over or under spent. They do not tell us why – that it something that we would need to investigate in real life. Maybe it is just because suppliers increased their prices!
2. Correct
3. Correct – more hours means we can produce more and make more profit. So favourable.
4. Correct.
5. Correct
6 Correct
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