MANUFACTURING
OVERHEAD VARIANCE
ONE WAY, TWO WAY, THREE WAY AND FOUR WAY VARIANCES
Group 7
Leony Lyn Briones
Christian Gracia
Marven Paolo Pasinos
Lois Marwie Tolentino
ONE- WAY
VARIANCE APPROACH
The one factor analysis is limited in its
usefulness
ONE-WAY VARIANCE
Applied Overhead
(Standard Price or
Combined Rate x
Standard Quantity)
ACTUAL OVERHEAD
(Variable Overhead +
Fixed Overhead)
TOTAL OVERHEAD
VARIANCE
TWO- WAY
VARIANCE APPROACH
Illustration:
The standard required to produce a unit of product for Carribean
Manufacturing Company is as follows:
Variable overhead, 2 machine hours @ P40
Fixed overhead, 2 machine hours @ P160
Budgeted fixed factory overhead
Budgeted volume of production
Actual machine hours
Actual variable factory overhead
Actual fixed factory ovehead
Actual unit produced
P320,000
1,000
1,890
P90,000
P310,000
900
EXAMPLE
APPLIED FACTORY
OVERHEAD
BUDGET OVERHEAD(at
std. qty. allowed)
APPLIED FACTORY
OVERHEAD
VARIABLE( 1,800*40)
72,000
SH x FACTORY OH RATE
900 x 2 x 200
FIXED OH -
310,000
4oo,000
CONTROLLABLE VARIANCE
=
FIXED OH
TOTAL
= 360,000
320,000
392,000
VOLUME VARIANCE
+
=
32,000
8,000
TOTAL OVERHEAD
VARIANCE
360,000
40,000
ACTUAL FACTORY
OVERHEAD
BUDGETED
OVERHEAD BASED
ON STANDARD
HOURS ALLOWED
Budget or Controllable
Variance
Applied FOH
(SVOR + SFOR) x
SH
TOTAL FIXED
OVERHEAD
VARIANCE
THREE- WAY
VARIANCE APPROACH
OVERHEAD (Base on
Actual
Input
Measure)
FIXED
OVERHEAD
BUDGET
+
(VOH
RATE
x
ACTUAL
LEVEL OF ACTIVITY/
QUANTITY)
OVERHEAD
SPENDING
VARIANCE
BUDGETED OVERHEAD
(Base on Standard
output Measure)
FIXED OVERHEAD
BUDGET + (VOH RATE
x ACTUAL LEVEL OF
Activity/ Quantity)
OVERHEAD
EFFICIENCY
VARIANCE
BUDGET
VARIANCE
APPLIED OVERHEAD
(FIXED OVERHEAD
RATE + VARIABLE
OVERHEAD RATE) x
STANDARD
QUANTITY FOR
ACTUAL OUTPUT
VOLUME
VARIANCE
VOLUME
VARIANCE
TOTAL OVERHEAD
VARIANCE
$12.00
$16,120
1,300
120,000
1,200
$14,400
$40,000
100,000
1,000 direct labor hours
per direct labor
$40
hour
120,000
$40,500
1,200
16,120
40,500
quarts
=40,500 + 16,120
= 56,620
OVERHEAD
EFFICIENCY
VARIANCE
OVERHEAD
SPENDING
VARIANCE
1,020
VOLUME
VARIANCE
(8,000)
1,200
BUDGET
VARIANCE
2,200
Applied Overhead
[(VOH RATE + FOH
RATE x SQ]
= (12 + 40) x 1,200
=62,400
VOLUME
VARIANCE
(8,000)
(5780)
The
spending
variance
or
1.
2.
3.
4.
5.
6.
costs
are
treated
2.
3.
Storms or strikes
4.
5.
6.
7.
ACTUAL VARIABLE
OVERHEAD
ACTUAL QUANTITY x
VARIABLE
OVERHEAD RATE
Variable Overhead
Spending Variance
STANDARD
QUANTITY x
VARIABLE
OVERHEAD RATE
(Applied VOH)
Variable Overhead
Efficiency Variance
TOTAL VARIABLE
OVERHEAD
VARIANCE
VARIABLE OVERHEAD
VARIABLE OVERHEAD SPENDING VARIANCE
= (AVOR x AH) (SVOR x AH)
= (AVOR SVOR)AH
AVOR- Actual Variable Overhead Rate
SVOR- Standard Variable Overhead Rate
AH- Actual Hours
VARIABLE OVERHEAD
VARIABLE OVERHEAD EFFICIENCY VARIANCE
= (SVOR x AH) (SVOR x SH)
= (AH SH) SVOR
AVOR- Actual Variable Overhead Rate
SVOR- Standard Variable Overhead Rate
AH- Actual Hours
ACTUAL VARIABLE
OVERHEAD
BUDGETED FIXED
OVERHEAD
Fixed Overhead
Spending Variance
STANDARD
QUANTITY x FIXED
OVERHEAD RATE
(Applied FOH)
Fixed Overhead
Volume Variance
TOTAL FIXED
OVERHEAD
VARIANCE
FIXED OVERHEAD
FIXED OVERHEAD SPENDING VARIANCE
= ACTUAL FIXED OVERHEAD - BUDGETED FIXED
OVERHEAD
FIXED OVERHEAD
FIXED OVERHEAD VOLUME VARIANCE
=BUDGETED FIXED OVERHEAD - APPLIED FIXED
OVERHEAD
=BUDGETED FIXED OVERHEAD - (SFOR x SH)
*SFOR- Standard Fixed Overhead Rate
*SH- Standard Hour
TOTAL VARIABLE
OVERHEAD VARIANCE
TOTAL FIXED
OVERHEAD VARIANCE
VARIABLE OVERHEAD
SPENDING VARIANCE
VARIABLE OVERHEAD
EFFICIENCY
VARIANCE
FIXED OVERHEAD
SPENDING VARIANCE
FIXED OVERHEAD
VOLUME VARIANCE
Illustration:
The standard required to produce a unit of product for Carribean
Manufacturing Company is as follows:
Variable overhead, 2 machine hours @ P40
Fixed overhead, 2 machine hours @ P160
Budgeted fixed factory overhead
Budgeted volume of production
Actual machine hours
Actual variable factory overhead
Actual fixed factory ovehead
Actual unit produced
P320,000
1,000
1,890
P90,000
P310,000
900
Variable Overhead
(1)
(2)
(3)
Actual variable
overhead
AH x Std. Variable OH
rate
Applied Variable OH
(SH x Std. variable
OH rate)
90,000
(1890x40) = 75,600
(1,800 x 40) =
72,000
Variable Overhead
Spending Variance
Variable Overhead
Efficiency Variance
P14,400 UF
P3,600 UF
Fixed Overhead
(1)
(2)
(3)
Budgeted Fixed
Overhead
Applied fixed OH
P310,000
P320,000
(900 x 2 x 60) =
P288,000
Variable Overhead
Spending Variance
Variable Overhead
Efficiency Variance
(P10,000) F
P32, 000 UF