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Dear Sir,please illustrate that how could we calculate variable overhead expenditure variance in the example in your lecture https://opentuition.com/acca/f5/planning-and-operational-variances.
If we assume that variable overheads are being charged on a labour hour basis, then the standard cost per hour is $0.70 (1.4 / 2).
So for the actual hours worked, the standard cost would be 10,200 hours x $0.70 = 7140. The actual cost is $7,000, and so the expenditure variance would be $140 (F).(Although you did not ask for it, then variable overheads efficiency variance would also be $140 (F). The standard hours for the actual production are 5,200 x 2 hours = 10,400 hours. The actual hours are 10,200, so they saved 200 hours. 200 hours x $0.70 = $140 (F) )
Sir, i didnt ask for variable overhead efficiency variance as the question says that the company uses marginal costing system.And while making operating statement of it, we would only take variable overhead expenditure variance and ofcourse all other routine variances too.We wont take or calculate variable overhead volume variance(variable overhead efficency & capacity variance).Right Sir?
And Sir, i salute to your prompt response.May this website be more famous than accaglobal.com.They respond too slowly to any query.They must learn from opentution.com
And i think opentution has a great future if it continues to work like this.:)
anyways Sir, in the answer to example in f5 question notes, you wrote over there variable overhead variance as 7000-(5200*1.4)=280,,,,then thats wrong.?????
it should be $140 F as you calculated above.Right or not??
No – it is not wrong! I would not have lectured it if it was wrong!!
If you add together 140 (expenditure) and 140 (efficiency) then you get 280.
In the question all that was required was the total variance, which is 280.
It is you who asked what the expenditure variance was.
The total variance can be analysed into expenditure and efficiency, but only if you assume that the variable overheads are charged on a labour hour basis.Have you watched the lecture on variance analysis?
It does not matter whether they are using marginal costing or absorption costing.
It is only fixed overhead variances that are different between marginal and absorption (because the only difference is as to whether fixed overheads are absorbed or not).
There is no such thing as a variable overhead volume variance.
By definition, variable overheads occur in marginal costing (in the same way as they do in absorption costing).
ok ,,I got your point.
I have watched all of your variances lectures.In one of them , you said that if the company uses marginal costing approach & when we make its operating statement, we take only fixed overhead expenditure variance & all other routine variances.
In the lecture you told fixed variable overhead volume variance comprises of fixed overhead capacity variance & fixed overhead efficiency variance. I dont exactly remember as many weeks have passed since i watched them but i think you said that in this lecture https://opentuition.com/acca/f5/standard-costing-and-basic-variance-analysis-part-1/ or https://opentuition.com/acca/f5/standard-costing-and-basic-variance-analysis-part-2/.
sir, in the answer to the notes of the lecture
https://opentuition.com/acca/f5/planning-and-operational-variances, you have not have included fixed overhead expenditure variance.Shouldn’t it be included in it?There is no such thing as ‘fixed variable overhead’.
Overheads are either fixed or variable.
Variable overhead variances are the same whether you are doing marginal costing or absorption costing.
It is the fixed overhead variances that are different – if it is marginal costing then the only variance is the expenditure variance. If it is absorption costing then there is expenditure variance, but there is also the volume variance (which can then be split into capacity variance and efficiency variance).
I
It is the fixed overhead variances that are different – if it is marginal costing then the only variance is the expenditure variance. If it is absorption costing then there is expenditure variance, but there is also the volume variance (which can then be split into capacity variance and efficiency variance).
thats what i also actually mean…
you haven’t included fixed overhead expenditure variance in the example of the lecture https://opentuition.com/acca/f5/planning-and-operational-variances while making its operating statementYes I have.
If you look at the very last line before actual profit (in the answer on page 125 of the course notes) you will see the variance of 500 (F).
The layout is slightly different than usual because I have started with the budget contribution instead of budget profit. It is perfectly acceptable.
However whichever layout you use the variance is the same – 500 (F)
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