Embed Size (px)
Citation preview
Copyright © 2003 Pearson Education Canada Inc. Slide 7-1
Chapter 8
Flexible Budgets, Variances, and Management Control: II
Copyright © 2003 Pearson Education Canada Inc. Slide 7-2
Overhead Costs
• Overhead costs are significant for most organizations
Variable Overhead• Recall that variable overhead is allocated to
products and services using a budgeted variable overhead rate
• Separate into efficiency and spending variances
Fixed Overhead• Recall that fixed overhead is allocated to products
and services using a budgeted fixed overhead rate• Separate into spending and production volume
variances
Pages 277 - 278
Copyright © 2003 Pearson Education Canada Inc. Slide 7-3
Variable Overhead Cost Variances
Variable overhead efficiency variance= (actual units of the allocation base - budgeted units
of the allocation base) x budgeted variable overhead allocation rate
= (4,500 - 4,000) x $30 = $15,000 U
Variable overhead spending variance= (actual variable overhead rate - budgeted variable
overhead rate) x actual units of the allocation base= ($29.00 - $30.00) x 4,500 = $4,500 F
Pages 279 - 282
Copyright © 2003 Pearson Education Canada Inc. Slide 7-4
Variable Overhead Variances
Pages 279 - 282
Flexible Budget Variance$10,500 U
Spending Variance$4,500 F
Efficiency Variance$15,000 U
VariableOverhead
Copyright © 2003 Pearson Education Canada Inc. Slide 7-5
Fixed Overhead Cost Variances
Fixed overhead spending variance= Actual fixed overhead costs – Static budgeted fixed
overhead costs= $285,000 - $276,000 = $9,000 U
Production volume variance= Budgeted fixed overhead - [ (Budgeted fixed
overhead allocation base allowed for actual output units) x (Budgeted fixed overhead rate) ]
= $276,000 - [ (0.40 x 10,000) x $57.50 ]= $276,000 - $230,000= $46,000 U
Pages 283 - 287
Copyright © 2003 Pearson Education Canada Inc. Slide 7-6
Overhead Cost Variances
Variable Overhead
Pages 289 - 290
Fixed Overhead
How theCost isPlanned
andControlled
How Costsare
Allocatedto
Products
$
Volume
$
Volume
$
Volume
$
Volume
