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Sir Kindly clear me with some doubts. i do get confuse with Fixed OH Capacity Variance , Efficiency variance , volume Capacity variance . what is the best way to remember as some questions do deceive a lot. .
A manufacturing company operates a standard absorption costing system.
Last month they budgeted on using 30,000 production hours and budgeted on a fixed production overhead cost of $180,000.
The actual hours worked last month were 28,000 and the standard hours for the actual production were 31,000.
What was the fixed overhead capacity variance for last month?.
I did this question wrong .
The capacity variance = (actual hours – budget hours) x fix o/h per hour (i.e. the absorption rate which is 180,000/30,000 = $6 per hour).
So capacity = (28000 – 30000) x $6 = $12000 adverseThe efficiency variance is (standard hours – actual hours) x fix o/h per hour.
= (31000 – 28000) x $6 = $18000 favourable.There is no such thing as the volume capacity variance – you mean the volume variance.
This the total of the capacity and efficiency = $6000 favourable.
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