Flexible budgets variances ii
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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

Chapter Eight

Flexible Budgets/Variances

II


Developing budgeted variable overhead allocation rates

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.


Developing budgeted variable overhead allocation rates1

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


Developing budgeted variable overhead allocation rates2

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)


Variable overhead data for april 2008

Variable Overhead Data For April 2008


Variable overhead variance analysis

Variable Overhead Variance Analysis


Developing budgeted fixed overhead allocation rates

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.


Developing budgeted fixed overhead allocation rates1

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


Developing budgeted fixed overhead allocation rates2

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)


Fixed overhead variance analysis

Fixed Overhead Variance Analysis


Journal entries for variable overhead

Journal Entries For Variable Overhead

1. Variable Overhead Control130,500

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


Journal entries for variable overhead cont

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


Journal entries for fixed overhea d

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,


Journal entries for fixed overhead cont

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


Static flexible budgets in standard cost format

Static/Flexible Budgets in Standard Cost Format


Sales volume variance analyzed

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


Actual results flexible budgets in standard cost format

Actual Results/Flexible Budgets in Standard Cost Format


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