This lesson extends the variance analysis framework to overheads and sales. It also covers how to reconcile budgeted profit with actual profit through an operating statement.

• Variable Overhead Variances: Variable overhead variances are analysed in a similar way to direct labour.

  • Variable Overhead Expenditure Variance: Measures the difference between the actual overhead incurred and the standard overhead for the actual hours worked.

  • Variable Overhead Efficiency Variance: Measures the difference between the actual hours worked and the standard hours for production.

• Fixed Overhead Variances: Fixed overhead variances are more complex and can be broken down into several components. Common variances include:

  • Fixed Overhead Expenditure Variance: Measures the difference between actual fixed overheads and budgeted fixed overheads.

  • Fixed Overhead Volume Variance: Measures the difference in overhead absorption caused by actual production volume differing from budgeted volume.

  • Sub-Variances: The volume variance can be further analysed into Capacity and Efficiency variances to provide additional insight .

• Sales Variances: These variances analyse the impact of the sales function on profit.

  • Sales Price Variance: Measures the difference between the actual selling price and the standard selling price.

  • Sales Volume Variance: Measures the difference between the actual sales volume and the budgeted sales volume.

• Reconciliation Statement: An operating statement is prepared to show the movement from budgeted profit to actual profit by adding/subtracting the variances calculated. This provides a clear and concise summary of how performance differed from the plan .