AC100_Lecture7-8_COMPLETE LECTURE SLIDES.pdf

Actual quantity of overhead allocation base for

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Actual quantity of overhead allocation base for actual output - Standard quantity of overhead allocation base for actual output × Standard overhead absorption rate = (4,500h 0.4h × 10,000 jackets) 30 = (4,500h 4000h) 30 = 15,000 U nfavourable 90
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Variable overhead variances: Efficiency variance Variable overhead efficiency variance = Actual quantity of overhead allocation base for actual output - Standard quantity of overhead allocation base for actual output × Standard overhead absorption rate = (4,500h 0.4h × 10,000 jackets) 30 = (4,500h 4000h) 30 = 15,000 U nfavourable Explanation : Actual machine hours may have been higher than the budgeted machine hours, because... ( your views count! ) 91
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Variable overhead variances: Spending variance Variable overhead spending variance = Actual overhead absorption rate - Standard overhead absorption rate × Actual quantity of overhead allocation base for actual output Give it a try! 92
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Variable overhead variances: Spending variance Variable overhead spending variance = Actual overhead absorption rate - Standard overhead absorption rate × Actual quantity of overhead allocation base for actual output = (29 /h 30 /h) 4,500h = (-1 /h) 4,500h = 4,500 F avourable Interpretation: Sofiya operated with a lower-than-budgeted variable overhead cost per machine hour. 93
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Possible reasons for VOH SPENDING VARIANCE Suppliers of various overhead services (e.g. electricity supplies ) may have changed their prices , which have not yet been reflected in updated standards. OH Absorption basis (e.g. labour hours) may not have been the most appropriate one as a standard for absorbing variable overheads.
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VOH EFFICIENCY variance - Cause for the variance A variance does not necessarily mean that a company has incurred less/more actual overhead , it simply means that there was a deterioration in USAGE of the allocation base ( e.g. as labour hours here ) that was used to apply overhead .
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3 levels of variable overhead variance analysis Actual 130,500 Static budget 144,000 Sales volume variance 24,000F Flexed budget: 120,000 Static-budget variance Flexible budget variance 10,500U Level 1 Level 2 Spending variance 4,500F Efficiency variance 15,000U Level 3 96
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COMPUTING AND EXPLAINING FIXED OVERHEAD VARIANCES 97
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3 levels of fixed overhead variance analysis Actual 285,000 Static budget 276,000 Flexed budget: 276,000 Static-budget variance Flexible budget variance 9,000U Level 1 Level 2 Spending variance 9,000U Level 3 Fixed cost cannot be flexed Cannot be used more or less efficiently 98
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COMPUTING AND EXPLAINING REVENUE AND SALES VARIANCES 99
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4 levels of sales variance analysis Actual revenue 1,850,000 Budgeted revenue 2,160,000 Flexed budget: 1,800,000 Static-budget variance Flexible budget variance 50,000F Level 1 Level 2 Level 3 Sales-volume variance 360,000U Level 4 Sales quantity variance Sales mix variance Market size var.
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  • Spring '08
  • A
  • Cost Accounting, Direct material price variance, Sofiya Company

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