- This topic has 3 replies, 2 voices, and was last updated 4 years ago by
.
- Posts
Monthly budget Monthly actual
Standard hrs 8000 8400Variable overheads:
Power 17600 20140
Consumable materials 6000 5960
Indirect labour 4400 4480The budgeted overheads are based upon the activity of 8,000 standard hours
What was the total variable overhead variance?
Sir the answer is $1180 A but my answer is $2580A
This is how I calculated my answer
AH*AR -SR*AH. +. SR*AH – SR*SH
(30580-29400)+(29400-28000)
1180A+1400AThe standard cost of the variable overheads is (17,600 + 6,000 + 4,400) / 8,000 = $3.50 per hour.
The actual total variable overheads are $30,580.
The standard cost for the actual hours worked is 8,400 x 3.50 = $29,400.
Therefore the variance is 30,580 – 29,400 = $1,180 adverse.
Again, I suggest that you watch my free lectures rather than try and learn equations.
Sir but I didn’t just use equations
These equations are there in the study textIn the study text it says that to find the total variable overhead variance we have to add the expenditure variance and efficiency variance
So I used the expenditure variance equation which is actual rate multiplied by actual hours substracted by actual hours into standard rate
And then there was this other efficiency variance equation that was actual hours minus standard rate substracted by standard hours into standard rate
My doubt now is in regard with why these study text equations do not usually work on questions such as these
Around most of the time these textbook equations work but sometimes it doesn’t like in the case of this question
But nontheless I will watch your lectures also to make sure i understand the topic because even I feel like I’m weak in this topic
The total variance is indeed the expenditure variance plus the efficiency variance.
However your Study Text should present it the other way round. The expenditure and efficiency variance are the way of analysing the reason for the total variance.
The reason your approach did not work is that you were treating it as though we were dealing with units (which normally is the case, but is not the case here). If the question had told the actual and standard hours per unit, then you would have an efficiency variance, but that is not the case here. The only variance is the expenditure variance.
When (as is usual) you are given details about the units, then you can certainly be asked in the exam to calculate the expenditure and/or the efficiency variance, but if all you are asked for is the total variance it will waste too much time to do it the way that you were trying to do it. One of the biggest problems in the exam is the time pressure.
- You must be logged in to reply to this topic.