CHAPTER 8 - CHAPTER 8 FLEXIBLE BUDGETS OVERHEAD COST VARIANCES AND MANAGEMENT CONTROL 8-2 At the start of an accounting period a larger percentage

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 8 FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND MANAGEMENT CONTROL 8-2 At the start of an accounting period, a larger percentage of fixed overhead costs are locked-in than is the case with variable overhead costs. When planning fixed overhead costs, a company must choose the appropriate level of capacity or investment that will benefit the company over a long time. This is a strategic decision. 8-3 The key differences are how direct costs are traced to a cost object and how indirect costs are allocated to a cost object: Actual Costing Standard Costing Direct costs Actual prices × Actual inputs used Standard prices × Standard inputs allowed for actual output Indirect costs Actual indirect rate × Actual inputs used Standard indirect cost-allocation rate × Standard quantity of cost-allocation base allowed for actual output 8-4 Steps in developing a budgeted variable-overhead cost rate are: 1. Choose the period to be used for the budget, 2. Select the cost-allocation bases to use in allocating variable overhead costs to the output produced, 3. Identify the variable overhead costs associated with each cost-allocation base, and 4. Compute the rate per unit of each cost-allocation base used to allocate variable overhead costs to output produced. 8-7 A direct materials efficiency variance indicates whether more or less direct materials were used than was budgeted for the actual output achieved. A variable manufacturing overhead efficiency variance indicates whether more or less of the chosen allocation base was used than was budgeted for the actual output achieved. 8-8 Steps in developing a budgeted fixed-overhead rate are 1. Choose the period to use for the budget, 2. Select the cost-allocation base to use in allocating fixed overhead costs to output produced, 3. Identify the fixed-overhead costs associated with each cost-allocation base, and 4. Compute the rate per unit of each cost-allocation base used to allocate fixed overhead costs to output produced. 8-10 For planning and control purposes, fixed overhead costs are a lump sum amount that is not controlled on a per-unit basis. In contrast, for inventory costing purposes, fixed overhead costs are allocated to products on a per-unit basis.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8-21 4-variance analysis, fill in the blanks. Variable Fixed 1. Spending variance 2. Efficiency variance 3. Production-volume variance 4. Flexible-budget variance 5. Underallocated (overallocated) MOH $1,900 U 1,000 U NEVER 2,900 U 2,900 U $1,000 U NEVER 500 U 1,000 U 1,500 U These relationships could be presented in the same way as in Exhibit 8-5. Actual Costs Incurred (1) Actual Input Qty. × Budgeted Rate (2) Flexible Budget: Budgeted Input Qty. Allowed for Actual Output × Budgeted Rate (3) Allocated: Budgeted Input Qty. Allowed for
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/07/2009 for the course ACCT 2102 taught by Professor Unknown during the Three '08 term at Queensland.

Page1 / 8

CHAPTER 8 - CHAPTER 8 FLEXIBLE BUDGETS OVERHEAD COST VARIANCES AND MANAGEMENT CONTROL 8-2 At the start of an accounting period a larger percentage

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online