# wk8_ch8n - Ch 8 Overhead Cost Variances...

This preview shows pages 1–5. Sign up to view the full content.

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

View Full Document
Lead-in example: Variances Webb Company makes and sells jackets. Webb’s original budget (plan) for 2010 was as follows: sales revenue \$1,440,000: 12,000 units (jackets) × price \$120 variable costs: direct materials \$720,000 : 12,000 units × 2 sq. yds per unit × \$30 per sq. yd. direct labor \$192,000 : 12,000 units × 0.8 hrs per unit × \$20 per hr var. OH \$144,000: 12,000 units × \$12 per unit fixed OH costs: \$276,000 operating income: \$108,000 Actual performance for 2010 was different: sales revenue \$1,250,000: 10,000 units × price \$125 variable costs: direct materials \$621,600 : 10,000 units × 2.22 sq. yds per unit × \$28 per sq. yd direct labor \$198,000 : 10,000 units × 0.9 hrs per unit × \$22 per hr var. OH \$130,500: 10,000 units × \$13.05 per unit fixed OH costs: \$285,000 operating income: \$14,900 Question: What went well (actual vs budget), what went wrong, who is to blame, and what can we learn? our focus today: overhead cost variances
Additional data for Webb’s overhead  costs Variable Overhead: cost-allocation base = machine-hours (MHrs) actual and budgeted numbers for var. OH: Fixed Overhead: cost-allocation base = machine-hours (MHrs) budgeted fixed OH = \$276,000, based on budgeted capacity of 4,800 MHrs budgeted fixed OH rate = \$276,000/4,800MHrs = \$57.50 per MHr actual fixed OH = \$285,000, actual MHrs used = 0.45*10,000 = 4,500 actual budgeted MHrs per output unit (jacket) 0.45 0.40 var. OH rate (var. OH per MHr) \$29.00 \$30.00 var. OH per output unit (jacket) \$13.05 \$12

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

View Full Document
Detour: planning OH costs Trickier than planning direct costs (DM/DL): the relationship between activities and costs is less transparent (especially for fixed OH) OH costs = a large number of different cost items, most of them
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 13

wk8_ch8n - Ch 8 Overhead Cost Variances...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online