- December 26, 2021 at 10:30 am #644849maria2020Member
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Could you please tell me whether my statements and their logical explanation are correct (using chap 13 example 1)?
1) Material Price
we are looking at whether we have paid more or less cost per kilo in actual for the material purchased than the standard $4.50 per kilo.
The same logic is applied to the labour rate and variable OH expenditure variances.
2) Material Usage
we are looking at whether we have used more or less kilos in actual for the material kilos used in production than the standard 4 kg per unit.
The same logic is applied to the labour efficiency and variable OH efficiency and fixed OH efficiency variances.
3) Fixed OH expenditure
we are looking at whether we have spent more or less cost per hour in actual than standard $3 per hour.
4) Fixed OH efficiency
we are looking at whether we have used more or less hours in actual than standard 5 hours per unit.
5) Fixed OH capacity
we are looking at whether we have used more or less hours in actual than budgeted hours.
6) Fixed OH volume
we are looking at whether we have produced more or less units in actual than budgeted units.
Fixed OH volume = Fixed OH efficiency + Fixed OH capacity
Is that ALL correct? This is what I understood from your lecture but I think that I don’t understand them completely.December 26, 2021 at 3:46 pm #644866John MoffatKeymaster
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3. Not correct. We are comparing the actual total expenditure with the budgeted total expenditure.
But please appreciate what I wrote in a reply to one of your previous questions, the chances of being asked the basic variances in Paper PM (especially the fixed overhead variances) is only very small because they are examined in Paper MA. It is the advanced variances that are important for Paper PM.
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