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Maribel
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Posted: 10 Aug 2011 at 23:12 \| IP Logged

Fixed Overhead Variance

Continuation of previous example.

For that year, you have budgeted to produce 120 hours for 120 pcs of chairs with a fixed factory overhead of $ 3,000. It means that each chair has a budgeted fixed overhead of $25 and 1 hour to finish.

Facts: You have produced only 100 pcs of chairs and you have actual fixed factory overhead of $ 3,600.00 and it took 1.5 hrs to finish one chair.

A. Actual Cost

B.Fixed Budgeted Factory OH

C.Applied FO Overhead (recorded on your book)

100 chairs x 1.5hrs x $24
=$3,600

Std Hrs x Std Rate x std. quantity
120 chairs x 1hr x $25
=$3000

Std. Hr x std.rate x actual output
=100 chairs x 1 x 25
=$2500

A-B=Fixed OH Spending Variance
=$3600-$3000
=$600 Unfavorable
(You have spent more than the fixed FOH budgeted. It is assumed that fixed FOH will not move with in the relevant range of production that's why it's unfavorable)

B-C=Fixed FOH Production Volume Variance
=$3000-$2500
=$500 Unfavorable
(You have not maximize the fixed overhead, you should have produced 120 units; 20 units X FOH rate =$500

Total Fixed FOH
=$600+$500=$1100
same as Actual less Applied
=$3,600-$2,500=$1100

Maribel
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Posted: 11 Aug 2011 at 00:11 \| IP Logged

(2) Do you know what a four way Overhead variance is?

I think you're talking about four way analysis not four way variance :).

A. Four Way Analysis (Just combine the result of analysis for variable and fixed OH as per above illustration)
Variable (2)	1. Spending Variance(Price variance)
Variable (2)	2. Efficiency variance
Fixed (2)	3. Fixed OH Spending Variance
Fixed (2)	4. Production Volume Variance


B. Three way analysis- Add the following: ( Just trim downhehehe. Combine those with same words..LOL)
	1. Spending Variance ( Variable FOH spending variance + fixed FOH spending variance
	2. Efficiency variance FOH variance
	3.Production Volume Variance

C. 2 way analysis- Add the following: (Squeeze again..LOL )
	1. Controllabe Variance - you add spending variance + efficiency variance
	2. Production Volume Variance

Note: In two way analysis, all variable FOH variances are under controllable. Which I think correct, since it's variable you can actually control it. While production variance is coming from fixed FOH. Remember fixed is fixed so maximize it!

tho9504
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Posted: 11 Aug 2011 at 15:42 \| IP Logged

Thank you so much....You're awesome!

Maribel
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Posted: 11 Aug 2011 at 21:11 \| IP Logged

Good luck to your exam!

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