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I saw your video on basic variances but I cannot understand the difference between budgeted, actual, and standard totals?
The formula to calculate the totals of budgeted, actual, and standard are:
Budgeted Total = (Budgeted hours x Standard rate)
Actual Total = (Actual hours x Actual rate)
Standard Total = (Actual hours x Standard rate)I know that we always compare actual totals with standard totals to get the variances. This is true and this is what we do in nearly all variances BUT in fixed overhead expenditure variance we compare actual totals with budgeted totals.
Fixed OH Expenditure variance is the difference between actual total and budgeted total as seen below:
Total Budgeted cost = Budgeted hours x Standard rate
Total Actual cost = Actual hours x Actual rateWhy is that?
Fixed overheads are treated differently because by definition the total should stay fixed regardless of the level of activity.
So we compare total budgeted and total actual cost (just the way I wrote above).
And what I said above was all correct too about how to calculate total budgeted, actual, and standard cost?
And could you tell what is the difference between them?
Yes, we compare the total budgeted cost with the total actual cost in order to get the fixed overhead expense variance.
As to how to calculate them in depends on the information given in the question.
However I would not worry too much about the fixed overhead variance because it is unlikely to be asked in Paper PM given that all the basic variances are revision from Paper MA (was F2) and are examined in detail in Paper MA.
Almost all variance questions in Paper PM are the advanced variances – planning and operational, or mix and yield.
Thanks 🙂
Could you say that to calculate the totals of budgeted, actual, and standard we can do like this:
Budgeted Total = (Budgeted hours x Standard rate)
Actual Total—–= (Actual hours x Actual rate)
Standard Total = (Actual hours x Standard rate)
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