1 / 24

Appendix 10A

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System. Appendix 10A. Learning Objective 4. (Appendix 10A) Compute and interpret the fixed overhead budget and volume variances. Fixed Overhead Budget Variance. Actual Fixed Overhead. Budgeted Fixed Overhead.

freira
Download Presentation

Appendix 10A

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Appendix 10A

  2. Learning Objective 4 (Appendix 10A) Compute and interpret the fixed overhead budget and volume variances.

  3. Fixed Overhead Budget Variance ActualFixedOverhead BudgetedFixedOverhead FixedOverhead Applied Budget variance Actualfixedoverhead Budgetedfixedoverhead Budgetvariance = –

  4. Fixed Overhead Volume Variance ActualFixedOverhead BudgetedFixedOverhead FixedOverhead Applied Volumevariance Fixedoverheadapplied towork in process Budgetedfixedoverhead Volumevariance = –

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

  6. Computing Fixed Overhead Variances

  7. Computing Fixed Overhead Variances

  8. 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

  9. 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

  10. 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

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

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

  13. 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

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

  15. Fixed Overhead Variances –A Graphic Approach Let’s look at a graph showing fixed overhead variances. We will use ColaCo’s numbers from the previous example.

  16. Graphic Analysis of FixedOverhead Variances Budget$270,000 Fixed overhead applied at $3.00 per standard hour Denominatorhours 0 0 90 Machine-hours (000)

  17. Graphic Analysis of FixedOverhead Variances Actual$280,000 { Budget Variance 10,000 U Budget$270,000 Fixed overhead applied at $3.00 per standard hour Denominatorhours 0 0 90 Machine-hours (000)

  18. Graphic Analysis of Fixed Overhead Variances Actual$280,000 { Budget Variance 10,000 U Budget$270,000 { Volume Variance 18,000 U Applied$252,000 Fixed overhead applied at $3.00 per standard hour Standardhours Denominatorhours 0 0 84 90 Machine-hours (000)

  19. Unfavorablevariances are equivalentto underapplied overhead. Favorablevariances are equivalentto overapplied overhead. The sum of the overhead variancesequals the under- or overappliedoverhead cost for the period. Reconciling Overhead Variances and Underapplied or Overapplied Overhead In a standardcost system:

  20. Reconciling Overhead Variances and Underapplied or Overapplied Overhead

  21. Computing the Variable Overhead Variances Variable manufacturing overhead rate variance VMRV = (AH × AR) – (AH × SR) = $100,000 – (88,000 hours × $1.00 per hour) = $12,000 unfavorable

  22. Computing the Variable Overhead Variances Variable manufacturing overhead efficiency variance VMEV = (AH × SR) – (SH × SR) = $88,000 – (84,000 hours × $1.00 per hour) = $4,000 unfavorable

  23. Computing the Sum of All Variances

  24. End of Appendix 10A

More Related