[mmp3]

Does anyone have a trick for remembering which formulas to use for the overhead variances? I am trying to following the example in Becker but think it would be easier if I just understood the concept rather than all of the components of the formula. Thanks

FAR 92 (2/27/13)
AUD 99 (4/18/13)
REG 93 (7/5/13)
BEC 92 (8/12/13)

Becker Self Study

[Never_Give_Up1]

PLEASE STICKY THIS JEFF!!!! I could not get this down for the life of me… I was so confused with Becker's explanation. Everyone who is doing BEC should watch this!

FAR - 81
REG - 81
AUD - 82
BEC - 81

Ethics - Done
State License Exam - Done

License - Licensed CPA in Utah

[Never_Give_Up1]

I am still stunned how easy you just made that… thank you so much for putting that together… WAYYYY better than what Becker was explaining. Your 3 minute video was better than me going through Becker for the 3rd time trying to understand it… again thank you!

FAR - 81
REG - 81
AUD - 82
BEC - 81

Ethics - Done
State License Exam - Done

License - Licensed CPA in Utah

[barelystayingsane]

Glad you found it helpful!

[jeff]

I've stickied it within the BEC Review forum – good idea.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Hi everyone,

I'm currently studying the overhead variance section and it is confusing as hell right now. I watched the video and made the table but am still very confused!!!

Here is what I got out of the video, PLEASE CORRECT ME IF I AM WRONG!:

The top row is the FIXED OH amount, with only the very left column (actual) being the actual amount spent on Fixed OH, while the other 3 columns are budgeted fixed costs.

Second Row is the variable OH line, with the two columns on the left being ACTUAL Variable OH spent, and the two columns on the right are the budgeted variable OH amounts using the “standard allowed for actual production”

Third row is…..NO CLUE 🙁

Is anyone kind enough to help me out? Thank you so much in advance!

[barelystayingsane]

@CPjAson I might be able to help you out. Give me a few minutes to write a reply.

[barelystayingsane]

As I mentioned in the video and in one of the comments above, this only works for variable overhead (and DM and DL), NOT total overhead. So every line in the video relates to VOH, not FOH. The rows are (in descending order) cost per input, input per output, and output.

The columns are as follows:

1st column: cost of actual variable overhead

2nd column: cost of VOH based on a budgeted cost per input

3rd column: cost of VOH based on a budgeted cost per input and a budgeted input per output (i.e., this is your flexible budget because output has changed from budgeted to actual)

4th column: cost of budgeted VOH

[Whopper Warrior]

Am I wrong in my oversimplification:

Efficiency (use of something such as; hours/materials) is always: the difference in efficiency use * std billing rate. Applies to FOH.

Spending (Cost of something) is always: the difference in price * ACTUAL efficiency (see above). Applies to VOH

ALL 4 parts passed summer 13
Ethics October 13
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Becker Only

[barelystayingsane]

The efficiency variance would apply to VOH and total OH. The only variance that applies to FOH for purposes of the exam is the production volume variance.

[barelystayingsane]

If you look at the table in the Becker text for total OH, budgeted FOH is in columns 2 and 3 and is the same amount, so the difference between columns 2 and 3 (the efficiency variance) is the difference between the standard input per output and the actual input per output multiplied by the standard VOH cost per input.

[Whopper Warrior]

@barelystayingsane Actually giving it more thought. Variable overhead would have both an efficiency and spending variance. Combined they would equal total variable overhead variance. Fixed Overhead naturally has the same standard, production volume (difference in output * std foh rate) is an efficiency measure. Combined voh and foh make up total oh but each of those parts is composed of its own efficiency and spending variance.

ALL 4 parts passed summer 13
Ethics October 13
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Becker Only

[barelystayingsane]

You would also include a VOH volume variance to get the total VOH variance. Combining just the efficiency and spending variance only gets you to the flexible budget variance.

[barelystayingsane]

I personally wouldn't call the production volume variance an efficiency measure because fixed costs don't change with changes in the activity base, but I think I see where you're coming from on that.

[Whopper Warrior]

So then there is 3 parts to create a total VOH or FOH variance? Or 6 Variances in Total for Total Overhead? Volume, Efficiency , and Spending.

With Volume Variance being an extension of Effeciency (std items – produced items) * std cost

Edit: This would mean production would also have three variances: Volume (master to flexible, extension of efficiency for production), Efficiency (change in inputs for production based on std cost), and spending (change in cost based on actual effeciency)

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[barelystayingsane]

I will have to look at my old notes from cost accounting in college, but I think the only two meaningful variances for FOH are the applied vs. actual variance and the production volume variance. I personally wouldn't look at VOH and FOH variances separately and then try to combine them, as the columns don't quite match up and it'll just get messy. I initially learned VOH and FOH separately for my college class, and then I just memorized the equations for total OH for the exam.

I would know the actual vs. applied variance and the production volume variances for FOH; the spending, efficiency, and volume variances for VOH; and the spending, efficiency, and volume variances (based on Becker's equations) for total OH. Don't worry about trying to break the actual vs. applied variance for FOH into three variances.

[Author]

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