Acct+315+Chap+8+Flex+Budget+OH+_1

# Acct+315+Chap+8+Flex+Budget+OH+_1 - Flexible Budgets,...

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Flexible Budgets, Variances, and Management Control: II

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Planning of Variable and Fixed Overhead Costs Effective planning of variable overhead costs involves undertaking only those variable overhead activities that add value for customers using the product or service. The key challenge with planning fixed overhead is choosing the appropriate level of capacity or investment that will benefit the company over an extended time period.
Standard Costing Standard input allowed for one output unit Standard cost per input unit × Cost Object Direct Cost

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Developing Budgeted Variable Overhead Allocation Rates Step 1: Choose the time period used to compute the budget . Pasadena Co. uses a twelve-month budget period. Step 2 : Select the cost-allocation base. Pasadena budgets 26,000 labor-hours for a budgeted output of 13,000 suits in year 2004.
Developing Budgeted Variable Overhead Allocation Rates Step 3: Identify the variable overhead costs . Pasadena’s budgeted variable manufacturing costs for 2004 are \$312,000. Step 4: Compute the rate per unit of each cost-allocation base. \$312,000 ÷ 26,000 hours = \$12/hour

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Developing Budgeted Variable Overhead Allocation Rates What is the budgeted variable overhead cost rate per output unit (dress suit)? 2.00 hours allowed per output unit × \$12 budgeted variable overhead cost rate per input unit = \$24 per suit (output unit)
Variable Overhead Cost Variances The following data are for 2004 when Pasadena produced and sold 10,000 suits: Output units: 10,000 Labor-hours: Actual results: 21,500 Flexible-budget amount: 20,000

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Variable Overhead Cost Variances Labor-hours per output unit: Actual results: 21,500 ÷ 10,000 = 2.15 Flexible-budget amount: 20,000 ÷ 10,000 = 2.00 Variable manufacturing overhead costs: Actual results: \$244,775 Flexible-budget amount: \$240,000
Variable Overhead Cost Variances Variable manufacturing overhead cost per labor-hour: Actual results: \$244,775 ÷ 21,500 = \$11.3849 Flexible-budget amount: \$240,000 ÷ 20,000 = \$12.00

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Variable Overhead Cost Variances Variable manufacturing overhead cost per output unit: Actual results: \$244,775 ÷ 10,000 = \$24.4775 Flexible-budget amount: \$240,000 ÷ 10,000 = \$24.00
The variable overhead flexible-budget variance measures the difference between the actual variable overhead costs and the flexible-budget variable overhead costs. Actual results: \$244,775

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## This note was uploaded on 12/10/2009 for the course ACCT 315 taught by Professor Siebert during the Fall '09 term at Saginaw Valley.

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Acct+315+Chap+8+Flex+Budget+OH+_1 - Flexible Budgets,...

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