[Anonymous]

Can someone help me better understand the whole overhead variance/Spending/Efficiency/Volume variance stuff in BEC 2? I’ve been staring at it for DAYS and I have no idea how to mathematically and conceptually understand it. I feel like a huge idiot for not getting this and my exam is coming up soon and I’m desperate! Any help would be appreciated!

[cpa2012done]

are you using becker? follow the book technique is very good

[mena je twa]

Also google overhead variance you will find a lot of information.

Licensed CPA, Texas - 2012

[Anonymous]

Break it down into separate pieces and take each piece individually instead of trying to overwhelm yourself with the entire concept.

First start with the overhead variance piece. There are two pieces to that (variable overhead and fixed overhead). Start with the variable overhead portion and break the variable component down even further to just the spending variance.

The spending variance is the equivalent to the material price variance and the labor rate variance. You are comparing an actual quantity to a standard price and an actual price (I use AAS to help me remember, where the middle A is your actual quantity and is used on each side of the equation with a preceding A for actual price and the following S for standard price). The standard for overhead as most books tell you is labor hours. So if we're looking at the spending variance you will take the actual hours of labor used for the job and multiply it by the estimated (standard) price rate for variable costs that is given to you in the problem. Then you take that same actual hours used for the job and multiply by the actual variable price paid per labor hour. The difference between these two amounts is your spending variance. If the standard rate portion of the equation is greater then the actual price paid then that is a favorable result.

The tail end of the variable overhead comparison is the efficiency variance. I use ASS since it is the “tail end”. The middle “S” represents your standard rate that you will use for each side of the comparison equation. The left A is actual quantity and the right S is standard quantity. If your SxS is greater then your AxS then you have a favorable efficiency variance.

Do the same type of thing for fixed overhead since it is very similar and then move on to the 3 variance approach. I just wanted to give you an idea on how to start.

[Anonymous]

Wow Dporter! That's awesome explanation. Your way of thinking just puts everything in place.

[Anonymous]

If you want my opinion, Becker's explanation of the overhead variances is terrible… I spent a full day trying to understand it and once I did I couldn't believe how easy it was. I also realized that there is no way an exam question could ask you to answer what the efficiency/volume O/H variance is without breaking out the question in the most simplest form (unlike ALL of the Becker homework questions). This is my opinion, I guess I'm just pretty disappointed with Becker right now, I feel like I just wasted a whole day of studying on something that could have been explained better elsewhere.

@dporter: great job explaining, couldn't do it better myself.

Chris

[Anonymous]

I honestly had no problem with the Becker method. I thought it was great. You really just need to know how to calculate it on the exam if you're even given a an OH variance question.

Memorize the 4 formulas Becker gives you (really only 2 formulas because 2 of the 4 formulas are just actual overhead and applied overhead). And, the other 2 formulas only differ because one uses Actual DLH (for example, any other driver could be used as well) and the other uses Standard DLH. Then, memorize how those formulas apply to the different variances. For example, net overhead variance is Formula 1 vs 4. The 2-way variance is 1 vs 3 vs 4. And, the 3-way variance is 1 vs 2 vs 3 vs 4.

Honestly, if you sit down for 5 minutes and memorize these from the Becker book, you should have little problems with OH variance questions. This might sound counter-intuitive, but actually trying to understand the variances makes the whole situation far more confusing than it has to be.

[Author]

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