Mowen Chapter 11--Revised

Mowen Chapter 11--Revised - Chapter Eleven Flexible Budgets...

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Unformatted text preview: Chapter Eleven Flexible Budgets and Overhead Analysis Learning Objectives 1. Prepare a flexible budget, and use it for performance reporting. 2. Calculate the variable overhead variances, and explain their meaning. 3. Calculate the fixed overhead variances, and explain their meaning. 4. Prepare an activity-based flexible budget. 2 Prepare a flexible budget, and use it for performance reporting. Performance Reports Compare actual costs with budgeted costs Two ways: Compare actual costs with budgeted costs for the budgeted level of activity Based on a static budget Compare actual costs with the actual level of activity Based on a flexible budget Static Budget A budget for one particular level of activity Performance report will compare: Direct materials, direct labor, and overhead costs budgeted for the planned level of activity with Actual costs for the actual level of activity Resulting in unfavorable variances when actual production exceeds the planned level To create a meaningful performance report: Actual costs and expected costs must be compared at the same level of activity HOW TO Prepare a Performance Report Based on a Static Budget (Using Budgeted Production) 6 Example Information: From the Master Budget Actual Data for Quarter 1 Production for Quarter 1: 1,060 Production: 1,200 units Materials: 1 plain t-shirt @ $3.00 5 ounces of ink @ $0.20 Labor: 0.12 hours @ $10.00 Variable overhead: Maintenance: 0.12 hour @ $3.75 Materials cost: $4,380 Labor cost: $1,500 Maintenance cost: $535 Power: 0.12 hour @ $1.25 Power cost: $170 Fixed overhead: Grounds keeping: $1,200 per qtr Grounds keeping: $1,050 Depreciation: $600 per quarter Depreciation: $600 Example Required: Prepare a performance report using a budget based on expected production. Performance Report Example Units produced 1,060 Budgeted The plan is to produce 1,060 units. All budgeted costs will be based on 1,060 units. Performance Report Example Units produced 1,060 Budgeted ($3.00 t-shirt + $1.00 ink) x 1,060 units Direct materials cost $4,240 Performance Report Example Units produced 1,060 Budgeted (0.12 hours x $10.00 per hour) x 1,060 units Direct materials cost $4,240 Direct labor cost 1,272 Performance Report Example Units produced 1,060 Budgeted (0.12 hours x $3.75 per hour) x 1,060 units Direct materials cost $4,240 Direct labor cost 1,272 Variable overhead: Maintenance 477 Performance Report Example Units produced 1,060 Budgeted (0.12 hours x $1.25 per hour) x 1,060 units Direct materials cost $4,240 Direct labor cost 1,272 Variable overhead: Maintenance 477 Power 159 Performance Report Example Units produced 1,060 Budgeted Direct materials cost $4,240 Direct labor cost 1,272 Variable overhead: Maintenance 477 Power 159 Fixed overhead: Grounds keeping 1,200 Depreciation 600 Grounds keeping and depreciation are both fixed costs. They will be $1,200 and $600 regardless of the number of units produced. Performance Report Example Units produced...
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Mowen Chapter 11--Revised - Chapter Eleven Flexible Budgets...

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