Fixed Overhead Capacity Variance Formula

Fixed Overhead Capacity Variance Formula

Fixed overhead Capacity variance is the difference between budgeted hours and actual hour worked and such difference is measured at standard hours.

Fixed overhead capacity = standard rate x (budgeted hours x actual Hours)

Example

Budgeted Unit Produced = 1400

Actual production= 1200

Budgeted hour per unit = 6

Actual hours taken = 7000

Standard absorption rate= 10

Calculated fixed capacity variance?

Solution

Budgeted hours = 1400 x 6= 8400

Fixed overhead capacity = standard rate x (budgeted hours x actual Hours)

= $ 10 x (8400-7000)

= $ 10 – 1400

= 14000 (Adverse)

Actual hour are lower than budgeted hours.

Fixed overhead volume Variance Formula

Fixed overhead volume Variance Formula

Fixed overhead volume variance is calculated by the following formula. Variable overheads volume variance may be favorable or adverse.

Standard Rate x (Budgeted Production – Actual Production)

Example

Actual Production = 1200

Budgeted Production = 800

Standard absorption Rate= $ 6

Solution

Standard Rate x (Budgeted Production – Actual Production)

= $ 6 x (1200-800)

= $6 x 400

=2400 Favorable

Variance is favorable because actual production is more than budgeted.

Fixed Overhead Efficiency Variance Formula

Fixed Overhead Efficiency Variance Formula

Fixed overheads efficiency Variance is difference between standard hr and actual hour taken by the production and such difference is measured at standard rate.

Fixed overhead efficiency variance = Standard rate (Standard hour – Actual Hrs)

Example

Unit produced = 5000

Standard hrs = 5 Hr per unit

Actual Hours = 24,000

Standard Rate = $ 6

Solution

Standard Hours = Production x standard hours =

5000 units x 5 hr= 25,000 hrs

Fixed overhead efficiency variance = Standard rate (Standard hour – Actual Hrs) 

= $ 6 x (25,000-24,000)

= $ 6 x 1000

= $ 6000

Fixed Overhead Expenditure Formula

Fixed Overhead Expenditure Formula

Fixed overhead expenditure is difference between budgeted fixed overhead expenditure and actual fixed overhead expenditure. This variance can be expressed as under

Fixed overhead Expenditure = Budgeted FOH – Actual FOH

Example

Budgeted Expenditure = 40,000

Actual Expenditure = 45,000

Solution

Fixed overhead Expenditure = Budgeted FOH – Actual FOH

=40,000-45000

=5000

Fixed Overheads Total Variance Formula

Fixed Overheads Total Variance Formula

Fixed overhead Total variance is difference between Fixed overhead incurred and Fixed overhead observed. Fixed overhead total variance may be favorable or adverse.

Fixed Overhead Total Variance =FOH Absorbed – FOH incurred

Example

Unit Produced= 10,000

Absorption Rate = $ 4 per unit

Actual Fixed overheads = 50,000

Solution

Absorbed = unit produced x Rate

 = 10,000 x $ 4

= $ 40,000

Fixed Overhead Total Variance = Fixed overhead incurred – FOH Absorbed

= 50,000-40,000

=10,000 (Fixed overhead total variance)

 Fixed overhead variance amounting 10,000/- is favorable.

Variable Overhead Expenditure Variance Formula

Variable Overhead Expenditure Variance Formula

Variable overhead Expenditure variance can be calculated by the following simple formula. Variable overhead expenditure variance can be favorable or adverse.

Actual Variable Overhead – (Actual Hr x Standard Rate per Hr)

Example

Actual Expenditure 100,000

Actual Hr 25,000

Standard Rate $ 5

Solution

Actual Variable Overhead – (Actual Hr x Standard Rate per Hr)

= 100,000 – (25,000 x 5)

= 100,000- 125,000

=-25,000

Variable Overhead Efficiency Variance Formula

Variable Overhead Efficiency Variance Formula

Variable overheads efficiency variance can be calculated by the following formula. Variable overhead efficiency variance may be favorable or adverse.

Variable overhead efficiency = Standard Rate x (Standard Hr-Actual Hr)

Example

Standard rate = $ 10

Standard Hr = 8 Hr per unit

Unit produced= 10,000

Actual Hr = 70,000

Solution

Standard hour = units produced x Hr taken per unit

= 10,000 x 8

=80,000 Hr

Variable overhead efficiency = Standard Rate x (Standard Hr-Actual Hr)

= 10 x (70,000-80,000)

= 10 x -10,000

=-100,000 (adverse Variable overhead efficiency variance).

Material Usage Variance Formula

Material Usage Variance Formula

Material usage variance is difference between standard quantity and actual quantity and such difference is measured at standard cost. Material usage variance may be favorable or adverse.

Material usage Variance = Standard Price x (Standard Quantity- Actual Quantity).

Example

Actual Quantity Consumed = 5000 kg

Per unit Standard Price of material A = $ 8

Units produced=1000

Standard usage per unit = 6 kg

Price of Material = 40,000

Calculate Material Price Variance

Solution

Standard consumption = Units produced x standard usage

=1000 x 6

=6,000 kg

$ 8 x (6000-5000)

= $ 8 x 1000

= $8000 (material usage variance)

Material Price Variance Formula

Material Price Variance Formula

Material Price variance is difference between standard price and actual price of actual quantity consumed during the production. Material price variance may be favorable or adverse.

Material Price Variance = Actual quantity x (Standard price- Actual Price).

Example

Actual Quantity Consumed = 5000 kg

Standard Price per unit = $ 5

Price of Material = 40,000

Calculate Material Price Variance

Solution

Actual Price = 40000/5 = 8 

Material Price Variance = Actual quantity x (Standard price- Actual Price).

Material Price Variance = 5000 (5 – 8)

=5000 (-3)

=-15,000 (Adverse Material Price Variance)

Labour Rate Variance Formula

Labour Rate Variance Formula

Labour rate variance is difference between the actual rate of actual labour and standard rate of actual labour. Labour rate variance may be favorable or adverse.  Labour rate variance can be calculated following equation or formula

Actual Quantity x (Actual rate- Standard Rate)

Example

Actual Labour on the production of Product X = 5000

Number of Unit produced of Product X = 1500

Standard Labour per unit of product X = 7 hr

Standard Rate = $6

Actual Labour Cost = 50,000

Calculate Labour rate Variance

Solution

Actual Cost per unit = 50,000/5000=10

Actual Quantity x (Standard Rate-Actual Rate)

= 5000 x (6-10)

= 5000 x -4

= -20000 (unfavorable)

Labour Efficiency Variance Formula

Labour Efficiency Variance Formula

Labour efficiency variance is calculated to show the labour performance. The difference between standard hour & actual hours is measured at standard rate. Labour efficiency ratio may be favorable or unfavorable. Labour efficiency variance can be calculated by the following formula

Actual > Standard hour = unfavorable Labour Variance

Actual Hours < Standard hour = Favorable Labour Variance

 Labour Efficiency Variance = (Standard Hours- Actual Hours) x (Standard Rate)

Example

 Table to be produced = 600

Standard Labour hour rate per table is= $ 6

Standard Labour hour needed per Table = 4 Hr

Actual hour taken was 1800 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 600 x 4 = 2400 hours

Labour Efficiency Variance = (Standard hours –Actual Hours) x (Standard Rate)

= (2400-1800) x 6

=(600 x6)

= 3600 (Favorable Variance)

Labour Efficiency Ratio Formula

Labour Efficiency Ratio Formula

Labour efficiency ratio is calculated by dividing the expected or standard labour hours with actual time taken by labour. This ratio explains the performance or efficiency of labour work force.

Labour Efficiency Ratio =   Expected Time.   x 100

                                        Actual Time

Example

Labour hour required for per unit production of equipment A = 8 Hours

Total Number of unit produced =400 units

Actual hour taken in production = 4000 Hour

Solution

Standard hours = 400 unit x 8 hr= 3200 hrs

Labour Efficiency Ratio =   Expected Time.   x 100

                                        Actual Time

=3200/4000 x 100

= 80% (Labour efficiency)

Labour efficiency has been 80%, which is 20% below than expectation