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# Flexible Budgets/Variances II PowerPoint PPT Presentation

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.

Flexible Budgets/Variances II

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Chapter Eight

Flexible Budgets/Variances

II

### 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 VariableOverhead Allocation Rates

Step 3:

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 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)

### 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 FixedOverhead Allocation Rates

Step 3:

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 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)

### Journal Entries For Variable Overhead

Accounts Payable and various other accounts 130,500

To record actual variable overhead costs incurred.

2. Work-in-Process Control 120,000

To record variable overhead cost allocated

### Journal Entries For Variable Overhead (cont.)

To record variances for the accounting period.

Cost of Goods Sold 10,500

### Journal Entries For Fixed Overhead

Salaries Payable, Accumulated Depreciation

and various other accounts 285,000

To record actual fixed overhead costs incurred.

2. Work-in-Process Control 230,000

To record fixed overhead costs allocated,

### Journal Entries For Fixed Overhead (cont.)

To record variances for the accounting period.

Cost of Goods Sold 9,000

Cost of Goods Sold 46,000

Fixed Overhead Production Volume Variance 46,000

### 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