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Flexible Budgets. Overhead Cost Management. Chapter 17. Flexible overhead budgets. Basic formula. Flexible overhead budgets. Overhead cost variances. Used for control and evaluation of overhead costs Variable overhead variances Variable overhead spending variance

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slide1

Flexible Budgets

Overhead Cost

Management

Chapter 17

overhead cost variances
Overhead cost variances
  • Used for control and evaluation of overhead costs
    • Variable overhead variances
      • Variable overhead spending variance
      • Variable overhead efficiency variance
    • Fixed overhead
      • Fixed overhead budget variance
      • Fixed overhead volume variance
variable overhead variances
Variable overhead variances

Actual variable overhead

Actual activity

X variable OH rate

Standard activity X variable OH rate

Variable overhead spending variance

Variable overhead efficiency variance

fixed overhead variances
Fixed overhead variances

Actual fixed overhead

Budgeted fixed overhead

Fixed overhead applied to WIP

Fixed overhead budget variance

Fixed overhead volume variance

variable overhead variances1
Variable overhead variances

$2,785.00

14,270 hours

X $0.19 =

$2,711.30

14,000 hours

X $0.19 =

$2,660.00

$73.70 unfavorable

Variable overhead spending variance

$51.30 unfavorable

Variable overhead efficiency variance

variable overhead variances2
Variable overhead variances
  • VOH spending variance
    • Total VOH cost is greater than the amount that should have been incurred at the actual hours worked
  • VOH efficiency variance
    • Number of hours worked is greater than the amount that should have been worked for the output achieved
fixed overhead variances1
Fixed overhead variances

$2,840.00

$2,400.00

14,000 hours

X $0.15

$2,100.00

$440.00 unfavorable

Fixed overhead budget variance

$300.00 unfavorable

Fixed overhead volume variance

fixed overhead variances2
Fixed overhead variances
  • FOH budget variance
    • Actual FOH cost is greater than the amount budgeted
  • FOH volume variance
    • Volume of output was less than planned
backflush costing
Backflush Costing
  • In a Just-in-Time environment
    • Products made to order
    • No inventories
    • All costs charged to CoGS
    • If there are inventories
      • Percentage of DM, DL and OH in each inventory is determined
      • Inventory accounts are adjusted accordingly and CoGS is reduced
proration of variances
Proration of Variances
  • At end of period
    • Variances are pro-rated to inventory accounts and CoGS
      • Raw Materials inventory only receives a proration of the material price variance
      • All other inventories and CoGS receive prorations of all variances
sales related variances
Sales-related Variances
  • Revenue budget variance
    • Difference between actual and budgeted revenue
  • Sales price variance
    • Actual sales volume * difference between actual and budgeted sales price
  • Sales volume variance
    • Budgeted sales price * difference between actual and budgeted sales volume
sales related variances5
Sales-related variances
  • Sales mix variance

Difference between actual and budgeted sales proportion for the specific product

Budgeted sales price for the specific product

Total unit sales for all products

*

*

sales related variances7
Sales-related variances
  • Sales quantity variance

Difference between actual and budgeted unit sales volume for all products

Budgeted sales proportion for the specific product

Budgeted sales price for the specific product

*

*

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