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Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System. Appendix 11A. Learning Objective 11-4. Compute and interpret the fixed overhead volume and budget variances. Fixed Overhead Volume Variance. Fixed Overhead Applied. Budgeted Fixed Overhead.

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Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

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  1. Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Appendix 11A

  2. Learning Objective 11-4 Compute and interpret the fixed overhead volume and budget variances.

  3. Fixed Overhead Volume Variance FixedOverheadApplied BudgetedFixedOverhead ActualFixedOverhead Volumevariance Fixedoverheadapplied towork in process Budgetedfixedoverhead Volumevariance = –

  4. Fixed Overhead Volume Variance FixedOverheadApplied BudgetedFixedOverhead ActualFixedOverhead DH × FR SH × FR Volumevariance Volume variance = FPOHR × (DH – SH) FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output

  5. Fixed Overhead Budget Variance FixedOverheadApplied BudgetedFixedOverhead ActualFixedOverhead Budget variance Actualfixedoverhead Budgetedfixedoverhead Budgetvariance = –

  6. Predetermined Overhead Rates Predetermined overhead rate = Estimated total manufacturing overhead costEstimated total amount of the allocation base $360,00090,000 Machine-hours Predetermined overhead rate = Predetermined overhead rate = $4.00 per machine-hour

  7. Predetermined Overhead Rates Variable component of thepredetermined overhead rate = Variable component of thepredetermined overhead rate = $1.00 per machine-hour $90,00090,000 Machine-hours $270,00090,000 Machine-hours Fixed component of thepredetermined overhead rate = Fixed component of thepredetermined overhead rate = $3.00 per machine-hour

  8. Applying Manufacturing Overhead Overheadapplied Predetermined overhead rate Standard hours allowedfor the actual output = × Overheadapplied $4.00 permachine-hour = × 84,000 machine-hours Overheadapplied = $336,000

  9. Computing the Volume Variance Budgetedfixedoverhead Fixed overheadapplied towork in process Volumevariance = – ( ) Volumevariance $3.00 per machine-hour $84,000 machine-hours = $270,000 – × Volumevariance = $18,000 Unfavorable

  10. Computing the Volume Variance Volume variance = FPOHR × (DH – SH) FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output ) ( $3.00 per machine-hour 90,000 mach-hours 84,000 mach-hours Volumevariance = × – Volumevariance = 18,000 Unfavorable

  11. Computing the Budget Variance Actualfixedoverhead Budgetedfixedoverhead Budgetvariance = – Budgetvariance = $280,000 – $270,000 Budgetvariance = $10,000 Unfavorable

  12. A Pictorial View of the Variances Fixed OverheadApplied toWork in Process BudgetedFixedOverhead ActualFixedOverhead 252,000 270,000 280,000 Volume variance, $18,000 unfavorable Budget variance, $10,000 unfavorable Total variance, $28,000 unfavorable

  13. End of Appendix 11A

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