For preparing and analyzing variable overhead

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for preparing and analyzingvariable overheadvariances.The fixedcomponent is usefulfor preparing and analyzingfixed overheadvariances.
Fixed Overhead Analysis
10-31Normal vs. Standard Cost SystemsIn a normal costsystem, overhead isapplied to work inprocess based onthe actual numberof hours workedin the period.In a standard costsystem, overhead isapplied to work inprocess based onthe standard hoursallowed for the actualoutput of the period.LO 6POHR x standard driverPOHR x actual driver
10-32Fixed Overhead VariancesBudget VarianceThe budget variance is a measure of the difference between the actual fixed overhead costs incurred during the period and the budgeted fixed overhead costs as contained in the flexible budget.Budget variance = Actual fixed overhead cost flexible budget fixed overhead costprice difference of actual OH and expected
10-33Fixed Overhead VariancesVolume VarianceThe volume variance is a measure of utilizationof plant facilities. Volume Variance Fixed portion of the predetermined overhead rate denominator hours standard hours allowedx=actual machine hrs vs what you expected
10-34“Budget Variance”“VolumeVariance”FR = Standard Fixed Overhead RateSH = Standard Hours AllowedDH = Denominator HoursSH ×FR Actual Fixed Fixed FixedOverhead Overhead Overhead Incurred Budget Applied DH ×FRFixed Overhead Variances
10-35ColaCo prepared this budget for overhead:Overhead Rates and OverheadAnalysis ExampleTotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,0006,000$ ?9,000$ ?4,0008,000?9,000?ColaCo applies overhead basedon machine-hour activity.
10-36Rate = TotalVariable Overhead ÷Machine HoursThis rate is constant at all levels of activity.TotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,0006,000$ 2.00$ 9,000$ ?4,0008,0002.009,000?ColaCo prepared this budget for overhead:Overhead Rates and OverheadAnalysis Example
10-37TotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,0006,000$ 2.00$ 9,000$ 3.00$ 4,0008,0002.009,0002.25Rate = TotalFixedOverhead ÷Machine HoursThis rate decreases when activity increases. ColaCo prepared this budget for overhead:Overhead Rates and OverheadAnalysis Example
10-38TotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,0006,000$ 2.00$9,000$ 3.00$4,0008,0002.009,0002.25The total POHR is the sum ofthe fixed and variable ratesfor a given activity level. ColaCo prepared this budget for overhead:Overhead Rates and OverheadAnalysis Example
10-39ColaCo’s actual production required 3,200 standardmachine hours. Actual fixed overhead was $8,450. The predetermined overhead rate is based on 3,000 machine hours.Fixed Overhead Variances Example
10-40Fixed Overhead Variances ExampleBudget variance$550 favourable$8,450$9,000Actual Fixed Fixed FixedOverhead Overhead Overhead Incurred Budget Applied
10-413,200 hours×$3.00 per hour Budget variance$550 favourableFixed Overhead Variances Example$8,450$9,000$9,600Volume variance$600 favourableSH ×FRActual Fixed Fixed FixedOverhead Overhead Overhead Incurred Budget Applied $1,150 favourable

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