Variable-overhead (OH) cost variance You may wish to point out the distinction between the OH rate/unit of output (i.e. jacket) and the OH rate/unit of the allocation base. Level 3 variance analysis requires OH rates expressed in terms of units of the allocation base. Developing budgeted fixed-overhead rates To highlight the subsequent contrast with stock costing, emphasise that the FB FOH is FIXED, FIXED, FIXED across the levels of output within the relevant range. Fixed-overhead cost variances Students become confused by many different euro values and by different quantities of the allocation base. Emphasise that in budgeted OH rates, all elements must be known before the period budgeted OH € and budgeted units of the allocation base. Students frequently also have trouble with recalling as to which is the numerator and which is the denominator. Remind them that OH rates are often specified as ‘€Xper hour, for example. Per means divided by. OH rates are calculated as € of OH per (divided by) unit of the allocation. Students find it confusing that for FOH, the SBV, the FBV and the spending variances are all identical. The lump-sum budgeted FOH is the same for actual output units (FB) and for budgeted output units (SB) – as long as both are in the same relevant range. Thus, the SB FOH equals the FB FOH, so there is no FOH SVV (unless actual and expected outputs are not in the same relevant range. Since SB FOH equals FB FOH, the SBV equals the FBV. Further, the FBV for FOH is typically not decomposed into separate price and efficiency variances. Rather, the FOH FBV is conventionally attributed entirely to the FOH spending variance. The FOH FBV arises because the amount spent is different from the budget (not because the manager was more or less efficient in dealing with a given amount of FOH). Thus, for FOH, SBV = FBV = Spending variance. It is only the VC that put the flex in the FB. FOH is fixed across output levels within the relevant range, so there is no SVV for FOH. This is because the budgeted amount of FOH is the same for the actual number of outputs (10,000 in the Sofiya example) as for the budgeted number of outputs (12,000 for Sofiya).