Alternative Formula for overhead Volume Variance Notes
Since total fixed costs remain the same at every level of activity
within the relevant range and a predetermined overhead rate
based on normal capacity is used in applying overhead, it follows
Direct Materials Price Standard Notes
The direct materials price standard is the cost per unit of
direct materials that should be incurred.
This standard is based on the purchasing departments best
estimate of the cost of raw materials.
This standard shou
Causes of Materials Variances Notes
The causes of variances may relate to both internal and
The investigation of a materials price variance usually
begins in the purchasing department.
A variance may be beyond the control of purchasing
Capital Budgeting Notes
The process of making capital expenditure decisions is
known as capital budgeting.
Capital budgeting involves choosing among various capital
projects to find one(s) that will maximize a companys return
on its financial investment.
Analyzing Variances Notes
To properly interpret the significance of a variance, you must
analyze it to determine the underlying factors. Analyzing
variances begins with a determination of the cost elements
that comprise the variance.
For each manufacturin
Cash Payback Notes
The cash payback technique identifies the time period
required to recover the cost of the capital investment from
the annual cash inflow produced by the investment.
The formula for computing the cash payback period is:
Cost of Capital
Distinguishing Between Standards and Budgets Notes
Conceptually, standards and budgets are essentially the
same. Both are pre-determined costs and both contribute
significantly to management planning and control.
A standard is a unit amount, whereas a bud
Standard Cost Accounting System Notes
All variances should be reported to appropriate levels of
management as soon as possible so that corrective action
can be taken.
The form, content, and frequency of variance reports vary
Standard Cost Accounting System Journal Entries Notes
Purchased raw materials on account for $13,200 when the
standard cost is $12,600.
The inventory account is debited for actual quantities at standard
cost. This enables the perpetual materials records
Manufacturing Overhead Variances Notes
The computation of the manufacturing overhead variances is
conceptually the same as the computation of the materials
and labor variances.
However, the task is more challenging for manufacturing
overhead because both
Manufacturing Overhead Standard Notes
For manufacturing overhead, a standard predetermined
overhead rate is used in setting the standard.
This overhead rate is determined by dividing budgeted
overhead costs by an expected standard activity index.
A Case S
Net Present Value Method Notes
Under the net present value (NPV) method, cash inflows
are discounted to their present value and then compared
with the capital outlay required by the investment.
The difference between these two amounts is referred to as