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Understanding Overhead Variances: A Comprehensive Review of Total Overhead Variance Analysis

In this study unit, we delve into the intricacies of total overhead variance, which is composed of four key variances: Total Variable Overhead Variance, Fixed Overhead Spending Variance, and Production Volume Variance. Gain insights into calculations for material price, quantity variances, and labor rate variances. Learn to evaluate spending and efficiency variances in both variable and fixed overhead, establishing a solid foundation for effective cost management and variance analysis in your accounting practices.

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Understanding Overhead Variances: A Comprehensive Review of Total Overhead Variance Analysis

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  1. Part 1 Study Unit 7 Review Jim Clemons, CMA

  2. SU 7.6 Overhead Variances Total Overhead Variance consists of four variances. • Total Variable overhead variances = flexible budget variance • Spending variance – difference between actual variable overhead and (budgeted application rate x the actual amount of input) • Variance is favorable if actual production spending < std spending • Efficiency variance – budgeted application rate times the difference between the actual input and the standard input allowed for actual output. • Total Fixed overhead variances • Spending Variances – difference between actual fixed overhead and the amount budgeted. Same as fixed overhead flexible budget variance. The fixed overhead is the same over the relevant range of output. • Production volume variance – (Idle capacity variance) difference between budgeted fixed overhead and the product of the budgeted application rate and the standard input allowed for the actual output.

  3. Problem 7.7

  4. Problem 7.7 – Calculate the following: • 1) Material Price Variance AQ x (SP-AP) • 2) Material Quantity Variance (SQ-AQ) x SP • 3) Labor Rate Variance AQ x (SP-AP) • 4) Labor Efficiency Variance (SQ-AQ) x SP • 5) Variable Overhead Spending Variance (AQxSP)-AC • 6) Variable Overhead Efficiency Variance(SQ-AQ)xSP • 7) Fixed Overhead Spending Variance • Flexible/Static budget – Actual costs incurred • 8) Fixed Overhead Efficiency Variance • (Std hours allowed for actual outputs x Std rate) x Flexible/Static budget

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