🌟 Overhead Total Variance Explained: The Costing Spectacle! 🌟
🍭 Meet the Overhead Total Variance! 🍭
In the bustling circus tent that is standard costing, overhead total variance is that tightrope walker you didn’t see coming! It’s the difference between the dreamland (standard overhead for actual production) and the sometimes harsh reality (actual overhead incurred). And boy, can it put on a show!
graph TD
A[Start] --> B{Actual Production}
B --> C[Standard Overhead Recovered]
B --> D[Actual Overhead Incurred]
C ===|Difference| E(Overhead Total Variance)
D ===|Difference| E
classDef standard fill:#f96,stroke:#000,stroke-width:2px;
classDef actual fill:#6ff,stroke:#000,stroke-width:2px;
class C,E standard
class D actual
🤝 Understanding Over/Under-Recovery 🤝
Here’s where the plot thickens!
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Over-Recovery: The illusionist - where the overhead recovered beams outshine the overhead incurred. Result: The company cheers, “Yay, overabsorbed overhead!”
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Under-Recovery: The magician gone wrong - where actual overhead turns out higher than expected. Result: The company whispers, “Ouch, underabsorbed overhead…”
🧙♂️ Fixed vs. Variable Overhead Chauvinism 🧙♂️
Separating the fixed from the variable in genial grandeur:
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Fixed Overhead Total Variance: Image your beloved pet rock. Steady, sometimes annoyingly so. This variance measures the twiddle between standard absorption of overhead costs and how they behaved in reality (looking at you, actual fixed overhead).
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Variable Overhead Total Variance: Imagine your pet rock hopped onto a pogo stick and won’t settle down. Welcomes variations. Day-to-day antics affect it, calculated as the difference between standard and actual variable overheads.
📊 A Peek Behind the Curtains with Equations 💡
Overhead Total Variance = Standard Overhead for Actual Units - Actual Overhead Incurred
Breaking this into duet pieces of mastery:
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Fixed Overhead Total Variance = (Standard Fixed Overhead Rate x Actual Units) - Actual Fixed Overhead
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Variable Overhead Total Variance = (Standard Variable Overhead Rate x Actual Units) - Actual Variable Overhead
pie
title Types of Overhead Variance
