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The following details relate to product T which has a selling price of $44.00
$/unit
Direct materials 15.00
Direct labour(3hours) 12.00
Variable overhead 6.00
Fixed overhead 4.00During April 20X6 the actual production of T was 800 units which was 100 units fewer than the budgeted. The budget shows an annual production target of 10800 with fixed costs accuring at a constant rate throughout the year. Actual overhead expenditure totalled $8500 for April 20X6.
Overheads are absorbed on the basis produced.What were the overhead expenditure and volume variance?
Ans:
Actual Spend 8500
Budgeted Spend 8400 ( cuz since its OH ignore DM and DL & (900*4) +(800*6)
Expenditure Var 100AHow to find volume variance
chrisblackbeardjensen: Please do not answer in this forum because it is Ask the Tutor (but do answer in the other forum).
Also, the question is asking about the overhead volume variance, not the sales volume variance.anu1234: Your expenditure variance is correct.
There is only ever a volume variance in relation to fixed overheads.
Since the produced 100 fewer units than budgeted, the volume variance is 100 x $4 p.u. = $400 adverse.Thanks John
That was so simple , may be I should read the questions but more carefully. Thanks again for your prompt responseDear Mr Moffat,
In the solution to Chris’s qsn above he subtracted the actual 8500 from Budgeted Spend 8400 however i didnt understand why he didn’t multiply 900 *$10 which is the variable n fixed OH to get the budgeted expenditure. Instead he multiplied them separately as follows: Please explain.
( cuz since its OH ignore DM and DL & (900*4) +(800*6)
The expenditure variance for variable overheads is got by comparing the actual cost of the actual hours with the standard cost of the actual hours.
For fixed overheads it is different – it is comparing the actual total with the budget total.
You really should watch your free lectures – they are a complete course covering everything you need for Paper F2.
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