AC222FinalEquationSheet-1 - Chapter 11: Flexible Budgets...

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Unformatted text preview: Chapter 11: Flexible Budgets and Overhead Analysis: Total Overhead Costs = Total Variable Costs + Total Fixed Costs Total Variable Overhead = Total Overhead Rate per activity x Total Activity Flexible Budget Concept: use a cost formula and multiply it by the actual level of activity for variable cost categories Computing the Overhead Rate: Predetermined Overhead Rate = Overhead from Flexible Budget at denominator activity level / Denominator Activity Level Ex: predetermined Overhead Rate = $7.50 – for every (standard machine hour recorded, WIP will be charged $7.50) Assigned Overhead = Predetermined Overhead Rate x Standard Activity Denominator Activity: estimated total amount of the base in the formula for the predetermined overhead rate (remains unchanged throughout year) Fixed Overhead Variances: Actual Fixed Budgeted Fixed Fixed Overhead Overhead Cost Overhead Cost Cost Applied to WIP (SQ x SR) Budget Variance Volume Variance Volume Variance = Fixed Component of the POR x (Denominator Hours – Standard Hours Allowed) Budget Variance = Actual Fixed Overhead – (Denominator hours x Standard fixed OH rate) Normal Cost System= overhead applied to WIP based on the actual # hours worked in the period Standard Cost System: overhead applied to WIP based on the standard hours allowed for actual output of the period. Factory Overhead Predetermined Overhead Rate x Standard Activity (or for Normal Costing use Actual Activity) Fixed Overhead Applied = Standard hours allowed for actual output x Fixed portion of Predetermined Overhead Rate Chapter 12 Segment Margin: Is computed by subtracting the traceable fixed costs of a segment from its contribution margin. Best gauge of long- run profitability ROI = (Net Operating Income / Sales) x (Sales / Average Operating Assets) ROI = Margin x Turnover Problem w/ ROI: more likely to not take investments that the company would want him to take.more likely to not take investments that the company would want him to take....
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AC222FinalEquationSheet-1 - Chapter 11: Flexible Budgets...

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