Page 243 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes The standard overhead cost is to be found out
Standard overhead cost for actual production has to be computed from the below given formula
= Standard Rate per Unit × Actual Production in Units
First step is to determine the standard rate per unit =

Budgeted Fixed Overheads
Budgeted Hours × Standard Rate of Article Produced per hour

2,700
= .3 paise
180 × 50
The next one is to find out the overhead cost
= 9,200 units × .30 paise = 2,760
Overhead Cost Variance = 2,760 – 2,800 = 40 (Adverse)
Overhead Budget Variance = Budgeted Overhead – Actual Overhead

= 2,700 – 2,800 = 100 (Adverse)
Overhead Volume Variance = Standard Overhead – Budgeted Overhead
= 2,760 – 2,700 = 60 (Favourable)
The overhead efficiency variance could be calculated in two different ways.

The efficiency is expressed in terms of hours and units. If the firm is able to produce the goods or
articles in lesser hours of duration, known as more efficient in time management than the
standard.
Likewise, the efficiency could be denominated in terms of units of production. If the actual
production is more than that of the standard production in units, the firm is favourable in
position in producing the articles than the standard.
Overhead Efficiency Variance = (Actual Production in Units – Standard Production in Units) ×
Standard Rate
= (9,200 units – 8,750 units) .30 = 450 units .30 = 135 (Favourable)

11.5 Sales Variance

Sales variances is the only component accompanied the profit volume variance of the business
transaction. The sales variances are computed and analysed in order to study the effect of sales
value and facilitates the sales manager to easily understand the various sales efforts taken by the
team.
The sales variance can be classified into various categories. They are as follows:

Figure 11.5

Sales Variance

Sales Value Sales Price Sales Volume Sales Mix Sales Sub-usage
Variance Variance Variance Variance Variance

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