Page 117 - P1 Integrated Workbook STUDENT 2018

Variance analysis

Example 5

Jayco discovered that whilst the budgeted variable overhead rate per hour
was $2, the actual variable overhead costs to make 1,100 units was $7,315.

Calculate the variable overhead expenditure and efficiency variances.

Solution

Variable overhead expenditure variance

(SR – AR) × AHw

SR = $2 per hour

AR = $7,315/4,180 hours = $1.75 per hour

AHw = 4,180 hours

Variance = ($2 – $1.75) × 4,180 = $1,045 Favourable

Variable overhead efficiency variance

(SH – AHw) × SR

SH = 4 hours per unit × 1,100 units made = 4,400 hours

AHw = 4,180 hours

SR = $2 per hour

Variance = (4,400 – 4,180) × $2 = $440 Favourable

Illustrations and further practice

Now try examples 7 and 8 from Chapter 8.

113