Overhead allocation

Overhead allocation - Overhead allocation Level of Activity...

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Overhead allocation Level of Activity Theoretical, or ideal, capacity : the level of activity that will occur if the company produces at its absolute most efficient level at all times. Practical or currently attainable capacity : the theoretical level reduced by allowances for idle time and downtime, but not for a decrease in sales demand Expected actual capacity utilization or master budget capacity utilization: the amount of output actually expected during the next budget period based on expected demand. Normal capacity utilization: it’s the average of past years. P.S if Normal or expected/Budgeted capacity used=>lowest denominator level=>highest income Predetermined rate= Total Budgeted Dollar Amount of (fixed/variable) Manufacturing Overhead Budgeted Activity Level Denominator level capacity: estimates about plant production capacity. Denominator-level variance=production-volume variance: is variances due changes in production, it’s an alerts for managements that fixed cost is spread among fewer units or more units, When master budget or normal capacity is used, the denominator level used will be the lowest of all the methods. Plant-wide Overhead rate:
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Overhead allocation - Overhead allocation Level of Activity...

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