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For the example given in P1 notes, why do we not calculate fixed overhead efficiency variance and fixed overhead capacity variance? Moreover, if we have idle time, to calculate fixed overhead capacity and efficiency variances, do we use the hours worked or the hours paid for?
Hello, Thank you for your question.
Apologies it does seem that the answer for the overhead capacity and efficiency variances have been cut off the notes download – I will rectify this asap.
The capacity variance should be actual hours worked Vs budgeted hours
The efficiency variance should be actual hours worked Vs standard hours for actual production.
Therefore in answer to your question – when calculating overhead variances with idle time we still use the hours worked ( not hours paid for )- e.g. 44,100 hours in the exercise 2 which is shown in the Open Tuition notes.
Thanks for pointing out the omission in the model answer.
Hope the answer above has helped.
Kind Regards
Cath
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