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Flexible Budgets/Variances II

Chapter Eight. Flexible Budgets/Variances II. Developing Budgeted Variable Overhead Allocation Rates. Step 1 : Choose the time period used to compute the budget. . Webb Co. uses a twelve-month budget period. Step 2: Select the cost-allocation base.

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Flexible Budgets/Variances II

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  1. Chapter Eight Flexible Budgets/Variances II

  2. Developing Budgeted VariableOverhead Allocation Rates Step 1: Choose the time period used to compute the budget.. Webb Co. uses a twelve-month budget period. Step 2: Select the cost-allocation base. Webb budgets 57,600 machine-hours for a budgeted output of 144,000 jackets in year 2008, or 0.40 MH per jacket.

  3. Developing Budgeted VariableOverhead Allocation Rates Step 3: Determine the variable overhead costs.. Webb’s budgeted variable manufacturing costs for 2008 are $1,728,000. Step 4: Compute the spending rate per unit of the allocation base. $1,728,0000 ÷ 57,600 MH = $30/MH

  4. Developing Budgeted VariableOverhead Allocation Rates What is the budgeted variable overhead cost rate per output unit (jacket)? 0.40 MH allowed per output unit × $30 budgeted variable overhead cost rate per MH (input) = $12 per jacket (output)

  5. Variable Overhead Data For April 2008

  6. Variable Overhead Variance Analysis

  7. Developing Budgeted FixedOverhead Allocation Rates Step 1: Choose the time period used to compute the budget.. The budget period is typically twelve months. Step 2: Select the cost-allocation base. Webb budgets 57,600 machine-hours for a budgeted output of 144,000 jackets in year 2008, or 0.40MH per jacket.

  8. Developing Budgeted FixedOverhead Allocation Rates Step 3: Determine the fixed overhead costs. Webb’s manufacturing budget for 2008 is $3,312,000, or $276,000 per month Step 4: Compute the rate per unit of the allocation base. $3,312,000 ÷ 57,600 = $57.50 per machine hour

  9. Developing Budgeted FixedOverhead Allocation Rates What is the budgeted fixed overhead cost rate per output unit (jacket)? 0.40 hours allowed per output unit × $57.50 budgeted fixed overhead cost rate/machine hour = $23 per jacket (output unit)

  10. Fixed Overhead Variance Analysis

  11. Journal Entries For Variable Overhead 1. Variable Overhead Control 130,500 Accounts Payable and various other accounts 130,500 To record actual variable overhead costs incurred. 2. Work-in-Process Control 120,000 Variable Overhead Allocated 120,000 To record variable overhead cost allocated

  12. Journal Entries For Variable Overhead (cont.) 3. Variable Overhead Allocated 120,000 Variable Overhead Efficiency Variance 15,000 Variable Overhead Control 130,500 Variable Overhead Spending Variance 4,500 To record variances for the accounting period. Cost of Goods Sold 10,500 Variable Overhead Spending Variance 4,500 Variable Overhead Efficiency Variance 15,000

  13. Journal Entries For Fixed Overhead 1. Fixed Overhead Control 285,000 Salaries Payable, Accumulated Depreciation and various other accounts 285,000 To record actual fixed overhead costs incurred. 2. Work-in-Process Control 230,000 Fixed Overhead Allocated 230,000 To record fixed overhead costs allocated,

  14. Journal Entries For Fixed Overhead (cont.) 3. Fixed Overhead Allocated 230,000 Fixed Overhead Spending Variance 9,000 Fixed Overhead Production-Volume Variance 46,000 Fixed Overhead Control 285,000 To record variances for the accounting period. Cost of Goods Sold 9,000 Fixed Overhead Spending Variance 9,000 Cost of Goods Sold 46,000 Fixed Overhead Production Volume Variance 46,000

  15. Static/Flexible Budgets in Standard Cost Format

  16. Sales Volume Variance Analyzed Sales-volume variance $64,000 U Level 2 Production-volume variance $46,000 U Operating-income volume variance $18,000 Level 3

  17. Actual Results/Flexible Budgets in Standard Cost Format

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