Page 387 - F2 - MA Integrated Workbook STUDENT 2018-19

Standard costing

7.2 Calculations

Expenditure variance

= budgeted fixed cost – actual fixed cost.

Applicable in both marginal costing and absorption costing systems

Variances will be favourable if Actual < Budget and adverse if Actual > Budget

Volume variance

Actual production volume × FOAR X
Budgeted production volume × FOAR Y

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Fixed overhead volume variance X – Y

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This variance only arises in absorption costing systems.

Variances will be favourable if Actual < Budget and adverse if Actual > Budget

If fixed overheads are absorbed based on hours then the volume variance can be
split into efficiency and capacity.

Efficiency variance $
Standard hours × FOAR per hour X
Actual hours × FOAR per hour Y

–––––

Fixed overhead efficiency variance X – Y
–––––

Variances will be favourable if Standard > Actual and adverse if Standard < Actual

Capacity variance $
Actual hours × FOAR per hour X

Less: Budgeted expenditure Y
–––––

Fixed overhead capacity variance X – Y
–––––

Variances will be favourable if Actual > Budget and adverse if Actual < Budget

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