Ch 10 Slides.pdf

Ch 10 Slides.pdf - 11-lFlexible Budgets andOverhead...

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Unformatted text preview: 11-lFlexible Budgets andOverhead AnalysisChapter TenLearning Objective 1Static Budgets and Performance ReportsHmm! ComparingStatic budgetsare prepared fora single, plannedlevel of activity.Performanceevaluation is difficultwhen actual activitydiffers from theplanned level ofactivity.Flexible BudgetsMay be prepared for any activitylevel in the relevant rangeShow costs that should have beenincurred at the actual level ofactivity, enabling "apples to apples"cost comparisonsReveal variances related tocost controllmprove performance evaluationLet's look at GheeseCo.Static Budgets and Performance ReportsCheeseCoStatic ActualBudget Re$|ts VariancsMachine hours 10,000Variablo co*lndirect labor S ,t0,000lndirectmaterials 30,000Power 5,000Fixed co$sDpreciation 12,0OOln$rance 2,000Total overhead costs $ 89,000Static Budgets and Performance ReportsCheeseCot;"1:, A"lil variansMachin houE 10,000 8,000Va ria ble soslslndirest laborlndiroct materialsPowerFixed costsDepresiationlnilranceTotal overhead costs12,OOO2,OOO$ 89,0005 40 000 $ 34 00030 000 25 5005 000 3 80012,OOO2,050$ 77,360t1-2Static Budgets and Performance ReportsCheeseGo1} sutic , Actuat'Budget Results VariancasU = Unfavorable varianceCheeseCo was unable to achieveFlxgd cosisDprociation 12,OO0 12,000 lnsranca 2,000 2,060 50 UTotal overhead costs $ 89,000$ 77,350 $1'1,650 rStatic Budgets and Performance ReportsCheeseGo10,000 8,000 2,000 uC;:J:, .,..r fl"$fl variancesMachine hoursVa ria ble costslndiract laborlndirect materials$ 40 000 $ 34 00030 000 25 500F = Favorable variance that occurs whenactual costs are less than budoeted costs,Static Budgets and Performance ReportsCheeseCoCi-"1:Actua IReilltsVa ria nce s8,000 2,000 uSince cost variances are favorable, haveStatic Budgets and Performance ReportsPreparing a Flexible Budgetfo fle1 a budget we need to know that:r Total variable costs changein direct proportion tochanges in activity.o Total fixed costs remainunchanged within therelevant range.Static Budgets and Performance Reports* The relevant question is . . ."How much of the favorable cost variance isdue to lower activity, and how much is dueto good cost control?"., To answer_the question,we must fl-1the budget to theactual level of activity.I 1-3Preparing a Flexible Budget_aPreparing a Flexible BudgetCog TotalFomula FixedIndirectlabor I 400lndirect maberial 3 00Power 0 50Total Eriable cos $ 7 50Fixed coststlepreciationlngEnceTotal fixed codTotal overhead coslsVariable costs are expressed asa constant amount per hour.$40,000 + 10,000 hours is$4.00 per hour.Preparing a Flexible BudgetPreparing a Flexible BudgetCod Tobl Flexible BudgebFomula Fixed 8,000 10,000 12,000Machine hou6Variable co*slndiEctlabor t 400lndiEct maberial 3 00Power 0.50Total variable cod 3 7 508,000 10,000$ 32.00024,@04,0005 60,(X)0Fixed co<sDepreciation $12,000 ti2,0o0lneEnce 2,000 2,@0Total fixed co* $ 14,@0Total overhead co* $ 74,000Preparing a Flexible BudgetMachine houEVariable co*slndiEct laborlndirec-t material...
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Ch 10 Slides.pdf - 11-lFlexible Budgets andOverhead...

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