Note on Variable and Fixed Overhead

Note on Variable and Fixed Overhead - Product Costing...

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Product Costing Versus Cost Control for Variable and Fixed Overhead There are two main purposes of any standard cost system in a manufacturing environment: 1. Product Costing to value inventory and COGS 2. Cost Control using some form of budget and standards. The way these two purposes are accomplished differs for variable versus fixed mfg. overhead. Variable Overhead: For Cost Control purposes, it is possible to determine a flexible budget using formula expressed as a linear equation in which the slope is the variable cost per unit (or per direct labour hour). Graphically, this would appear as follows: For Product Costing purposes, the variable overhead must be applied to the job using a standard variable overhead rate time the actual units. This gives us the variable overhead applied and this application can likewise can be expressed as a linear function. In fact, both the linear function and the resulting graph will be identical to the function and graph used for Cost control purposes. Hence both the Flexible budget line for variable overhead and the Variable Overhead Applied
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This note was uploaded on 03/03/2012 for the course ACCT 2460 taught by Professor Farrar during the Winter '12 term at Conestoga.

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Note on Variable and Fixed Overhead - Product Costing...

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