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Hi,
I have a question on variance analysis, hopefully I have posted this in the right place.
Mugshot ltd absorbs it’s fixed production overhead on a labour hour base.
Favourable fixed overhead expenditure variance £8500
Adverse fixed overhead volume variance £12000
Actual units produced
49500Standard oar per labour hour
£4.2Budgeted fixed overhead
£78000Question is what are the standard labour hours for the period. Answer given is 15500 hours
What I don’t get is that is the standard labour hours not calculated as 78000/4.2=18571.
The answer used the variances to find under absorption of 4400. Then worked out the standard hours from there but would that not be working out the actual hours for the period?
Many Thanks sorry if confusing
18,571 is the budgeted labour hours, but that is not what the question is asking for.
The standard hours are the hours that should have been spent on the actual production.
Hi John
Thanks for the reply. Sorry I made a mistake in the original question, the adverse fixed overhead volume variance is 12900.
After adding the two fixed overhead variances you get under absorption of 4400. So then
4.2 * actual activity level = 69500 – 4400
Then if you work out for the actual activity level you get 15500 the answer. So is this right or am I still mixing up standard wording ect
Many thanks for you help with this
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