Flexible Budgets and Overhead Analysis, Part 3 | California State University, Northridge

University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
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310

Pages:

17
Author:

ukubwaj84

Chapter 9 Flexible Budgets and Overhead Analysis Part 3 Learning Objective LO3 To use a flexible budget to prepare a variable overhead performance report containing only a spending variance Variable Overhead Variances – A Closer Look If flexible budget is based on actual hours If flexible budget is based on standard hours Only a spending variance can be computed. Both spending and efficiency variances can be computed. Variable Overhead Variances – Example ColaCo’s actual production for the period required 3,200 standard machine hours. Actual variable overhead incurred for the period was $6,740. Actual machine hours worked were 3,300. The standard variable overhead cost per machine hour is $2.00. Compute the variable overhead spending variance first using actual hours. Then use standard hours allowed to calculate the variable overhead efficiency variance. Variable Overhead Variances Actual Variable Overhead Incurred Flexible Budget for Variable Overhead at Actual Hours AH × AR AH × SR Spending Variance Spending variance = AH(AR – SR) AH = Actual hours AR = Actual variable overhead rate SR = Standard variable overhead rate Variable Overhead Variances – Example Actual Variable Overhead Incurred Flexible Budget for Variable Overhead at Actual Hours $6,740 3,300 hours × $2.00 per hour = $6,600 Spending Variance = $140 unfavorable Variable Overhead Variances – A Closer Look Spending Variance Results from paying more or less than expected for overhead items and from excessive usage of overhead items. Now, let’s use the standard hours allowed, along with the actual hours, to compute the efficiency variance. Learning Objective LO4 To use a flexible budget to prepare a variable overhead performance report containing both a spending and an efficiency variance Variable Overhead Variances Actual Variable Overhead Incurred Flexible Budget for Variable Overhead at Actual Hours AH × AR AH × SR Spending Variance Flexible Budget for Variable Overhead at Standard Hours SH × SR Efficiency Variance Spending variance = AH(AR - SR) Efficiency variance = SR(AH - SH) Variable Overhead Variances – Example Actual Variable Overhead Incurred Flexible Budget for Variable Overhead at Actual Hours 3,300 hours × $2.00 per hour $6,740 Spending variance $140 unfavorable $6,600 Flexible Budget for Variable Overhead at Standard Hours 3,200 hours × $2.00 per hour $6,400 Efficiency variance $200 unfavorable $340 unfavorable flexible budget total variance Variable Overhead Variances – A Closer Look Efficiency Variance Controlled by managing the overhead cost driver. Quick Check  Yoder Enterprises’ actual production for the period required 2,100 standard direct labor hours. Actual variable overhead for the period was $10,950. Actual direct labor hours worked were 2,050. The predetermined variable overhead rate is $5 per direct labor hour. What was the spending variance? a. $450 U b. $450 F c. $700 F d. $700 U Quick Check  Spending variance =actual AH (ARproduction - SR) Yoder Enterprises’ for the period=required 2,100 standard direct labor hours. Actual variable overhead incurred – (AH × SR) Actual variable overhead for the period was = $10,950 (2,050 hours × $5 worked per hour)were $10,950. Actual –direct labor hours 2,050.=The predetermined $10,950 – $10,250 variable overhead rate is $5 per direct labor hour. What was the spending = $700 U variance? a. $450 U b. $450 F c. $700 F d. $700 U Quick Check  Yoder Enterprises’ actual production for the period required 2,100 standard direct labor hours. Actual variable overhead for the period was $10,950. Actual direct labor hours worked were 2,050. The predetermined variable overhead rate is $5 per direct labor hour. What was the efficiency variance? a. $450 U b. $450 F c. $250 F d. $250 U Quick Check  Yoder Enterprises’ actual production for the period required 2,100 standard direct labor hours. Actual variable overhead for the period was Efficiency = SR (AH $10,950.variance Actual direct labor– SH) hours worked were 2,050. The variable overhead = $5 perpredetermined hour (2,050 hours – 2,100 hours) rate is $5 per direct labor hour. What was the = $250 F efficiency variance? a. $450 U b. $450 F c. $250 F d. $250 U Quick Check Summary Actual Variable Overhead Incurred Flexible Budget for Variable Overhead at Actual Hours 2,050 hours × $5 per hour $10,950 Spending variance $700 unfavorable $10,250 Flexible Budget for Variable Overhead at Standard Hours 2,100 hours × $5 per hour $10,500 Efficiency variance $250 favorable $450 unfavorable flexible budget total variance Activity-based Costing and the Flexible Budget It is unlikely that all variable overhead will be driven by a single activity. Activity-based costing can be used when multiple activity bases drive variable overhead costs.