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Factory Overhead Variances

The document analyzes factory overhead variances using a 5-way analysis. It identifies a total overhead variance of P100,000 unfavorable, which is broken down into variances for controllable costs, volume, spending, capacity, variable efficiency, and fixed efficiency.

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Kabobo Han
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3K views11 pages

Factory Overhead Variances

The document analyzes factory overhead variances using a 5-way analysis. It identifies a total overhead variance of P100,000 unfavorable, which is broken down into variances for controllable costs, volume, spending, capacity, variable efficiency, and fixed efficiency.

Uploaded by

Kabobo Han
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FACTORY OVERHEAD

VARIANCES
Normal capacity 135,000 units or 405,000hours
(135,000 x 3hrs)

Standard hours 390,000 hrs.


Actual hours 380,000 hrs.
Standard overhead rates:
Fixed overhead rate P 3.00/hr
Variable overhead rate 2.00/hr
Total overhead rate P 5.00/hr
Actual overhead costs
Variable, P800,000 and Fixed, P1,250,000

Total factory overhead variance = AFOH – SFOH


= 2,050,000 – 1,950,000
= 100,000 UF
2-way analysis (Con Vo)

Controllable variance represents the change in the amount of


money spent based on absolute peso amount and on the
number of hours used

Volume variance measures the deviation in hours between the


standard capacity from normal capacity
Factory overhead costs variances, 2-way analysis

Controllable Variance
AFOH 2,050,000
Less: BASH
Fixed (405,000 hrs. x 3) 1,215,000
Variable (390,000 hrs. x 2) 780,000 1,995,000 55,000 UF
Volume Variance
BASH 1,995,000
Less: SFOH (390,000 hrs. x 5) 1,950,000 45,000 UF
Total overhead variance 100,000 UF

Actual factory overhead (AFOH)


Controllable Variance
Budgeted allowance on standard hours (BASH)
Volume Variance
Standard factory overhead (SH x SR)
3-way analysis (SEV)
Spending variance is the rate variance. It indicates the difference in
the amount of money spent per unit produced or per hour
used.
formula:
Spending variance = AFOH – BAAH

Variable efficiency variance refers to the amount of money spent


on the difference in hours used relative to variable overhead.
formula:
Variable efficiency variance = BAAH – BASH
or
= H x VOHR
Factory overhead costs variances, 3-way analysis

Spending (budget) Variance


AFOH 2,050,000
Less: BAAH
Fixed (405,000 hrs. x 3) 1,215,000
Variable (380,000 hrs. x 2) 780,000 1,975,000 75,000 UF
Variable Efficiency Variance
BAAH 1,975,000
Less: BASH 1,995,000 (20,000) F
Volume Variance
BASH 1,995,000
Less: SFOH (390,000 hrs. x 5) 1,950,000 45,000 UF
Total overhead variance 100,000 UF
Factory overhead costs variances, 4-way analysis

Fixed Spending Variances


Actual Fixed Overhead 1,250,000
Less: Budgeted Fixed Overhead 1,215,000 35,000 UF
(405,000 hrs. x 3)

Variable Spending Variances


Actual Variable Overhead 800,000
Less: Actual hrs. x VOHR (380,000 x 2) 760,000 40,000 UF
Variable Efficiency Variance
BAAH 1,975,000
Less: BASH 1,995,000 (20,000) F
Volume Variance
BASH 1,995,000
Less: SFOH (390,000 hrs. x 5) 1,950,000 45,000 UF
Total overhead variance 100,000 UF
5-way analysis

The volume variance is composed of the idle capacity variance and the fixed
efficiency variance.

Capacity variance measures the ability of the business to produce under or over
its normal production level.
Formula:
Capacity variance = BAAH – (AH x Standard overhead rate)
or
= (NH - AH) x Fixed overhead rate
Factory overhead costs variances, 4-way analysis

Fixed Spending Variances


Actual Fixed Overhead 1,250,000
Less: Budgeted Fixed Overhead 1,215,000 35,000 UF
(405,000 hrs. x 3)

Variable Spending Variances


Actual Variable Overhead 800,000
Less: Actual hrs. x VOHR (380,000 x 2) 760,000 40,000 UF
Variable Efficiency Variance
BAAH 1,975,000
Less: BASH 1,995,000 (20,000) F
---
Fixed Spending Variances 35,000 UF

Variable Spending Variances 40,000 UF

Variable Efficiency Variances (20,000) F

Capacity Variance
BAAH 1,975,000
Less: AH x SOHR (380,000 x 5) 1,900,000 75,000 UF
Fixed Efficiency Variance
Actual hours 380,000 hrs.
Less: Standard hours 390,000 hrs.
Change in hours (10,000) F
Multiply by FOHR 3.00 (30,000) F
Total Overhead Variance 100,000 UF
Summary of OH Variances

Overhead Variance
100,000 UF

Controllable Variance Volume Variance


55,000 UF 45,000 UF

Volume Efficiency Spending Variance Capacity Variance Fixed Efficiency


Variance 75,000 UF 75,000 UF Variance
(20,000) F (30,000) F

Variable Spending Fixed Spending


Variance Variance
40,000 UF 35,000 UF

Variable OH Variances Fixed OH Variances

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