What the Hell is a Fringe Load Variance Reserve ?

A variance account is a cost accounting concept that is used to establish a costing method that simplifies and reduces the number of accounting entries that have to be made for an recurring expense. Simply put the City of Vernon has decided at the start of the year that for every dollar of salary cost that is incurred by a department there will be 22% of overhead charged on that dollar to that department. (If the department recovers these costs from an outside agency, say NORD they charge this standard overhead charge for every dollar of salary billed etc.)

This standard overhead charge is debited to these departments and the offset or credit is put in the Fringe Load Variance Account. Now when the bills come in for the fringe benefits whether they be medical,dental.uic, cpp or other authorized expenses, this account is debited for the actual expenses billed and the suppliers are paid.

Basically the difference between the standard 22% estimated overhead (Credits ) and the actual billed costs (Debits) are put in the account. Standard costs are Compared to actual costs at the end of each accounting period and a variance calculated. Hopefully the balance is a credit balance which would indicate that the 22% overhead charge is in excess of actual. If the credit is material and all the bills are in and the period is complete it may be necessary to recalculate the 22% overhead charge downward. Regardless the credit must be flatten out and credited to revenue or a reserve for the same period.

In Vernon’s case the credit amounted to $490,000 and was transferred to the now infamous FRINGE LOAD VARIANCE RESERVE.

• For what period of time was this $490,000 for. Did it accumulate in 2006 only or was it spread over a longer period?This determination of time is necessary so a more correct overhead rate can be utilized in the future.
• What is the balance in this variance account in 2007 ?