312-Ch11RevNotes(8th) - CHAPTER 11 - FLEXIBLE BUDGETING AND...

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CHAPTER 11 - FLEXIBLE BUDGETING AND THE MANAGEMENT OF OVERHEAD AND SUPPORT ACTIVITY COSTS FLEXIBLE BUDGETS flexible budget  is a detailed plan for controlling overhead and other costs.  Most important, the  flexible budget is prepared for different levels of activity within a firm's relevant range.   In contrast, a  static budget  (such as the master budget in Chapter 9) sets forth a plan for only  one level of activity.   The flexible budget results in improved performance evaluations.  Actual results at one activity level  are compared against what should have happened (i.e., budgeted costs) at the same level of output.   With static budgets, actual results are compared against anticipated results at what might be two  different volume levels. As mentioned in previous chapters, when applying or budgeting overhead, the activity base must be  chosen carefully.  It is typically an input measure, namely, the standard hours allowed for the actual  production. The flexible budget may be expressed as a formula:  Total budgeted overhead = (Budgeted variable cost per activity unit x Number of  activity units) + Budgeted fixed overhead cost The formula allows quick calculation of overhead amounts at any volume level within the relevant  range.  OVERHEAD APPLICATION IN A STANDARD-COSTING SYSTEM Overhead application to Work-in-Process Inventory in a standard-costing system is similar to the 
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This note was uploaded on 03/30/2010 for the course CH 369 taught by Professor Kbrowning during the Spring '07 term at University of Texas.

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312-Ch11RevNotes(8th) - CHAPTER 11 - FLEXIBLE BUDGETING AND...

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