Bài giảng Managerial Accounting - Chapter 11: Flexible Budgeting and Analysis of Overhead Costs
Static budgets are prepared for a single, planned level of activity. Performance evaluation for overhead is difficult when actual activity differs from the planned level of activity. Since direct material and direct labor are traceable to products, it is straightforward to determine standard costs for these inputs. But to compare overhead costs at the budgeted level of activity to actual overhead costs at some other level of activity, is like comparing apples and oranges. (LO1)
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Flexible Budgeting and Analysis of Overhead CostsChapter 11Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Flexible Budgets Static budgets are prepared for a single, planned level of activity. Performance evaluation for overhead is difficult when actual activity differs from the planned level of activity.Hmm! Comparing static budgets with actual costs is like comparing apples and oranges.11-*Advantages of Flexible BudgetsImprove performance evaluation.May be prepared for any activity level in the relevant range.Show revenues and expenses that should have occurred at the actual level of activity. Reveal variances due to good costcontrol or lack of cost control.11-*Preparing a Flexible Budget11-*Preparing a Flexible BudgetVariable costs are expressed as a constant amount per hour.Fixed costs are expressed as a total amount that does not change within the relevant range of activity. 11-*Preparing a Flexible Budget11-*Preparing a Flexible Budget11-*Preparing a Flexible BudgetNote: There is no flex in the fixed costs.11-*Preparing a Flexible BudgetBudgeted variable Total overhead cost per activity activity unit units ×+Budgeted fixed overhead costTotal budgeted overhead cost=11-*Flexible Budget Performance Report11-*Flexible Budget Performance ReportFlexible budget is prepared for the same activity level (8,000 hours) as actually achieved.11-*Flexible Budget Performance Report11-*Flexible Budget Performance ReportIndirect labor and indirect material have unfavorable variances because actual costs are more than the flexible budget costs. 11-*Flexible Budget Performance ReportPower has a favorable variance because the actual cost is less than the flexible budget cost. 11-*Overhead Application in a Standard Costing System11-*Overhead Application in a Standard Costing System11-*Choice of Activity Measure Variable overhead and the activity measure should vary in a similar pattern. Identify variable overhead cost drivers. Examples: machine hours, labor hours, process time. Dollar measures should be avoided as they are subject to price-level changes.11-*Spending VarianceEfficiency Variance AH × SVR AH × ARAH = Actual Hours of Activity AR = Actual Variable Overhead Rate SVR = Standard Variable Overhead Rate SH = Standard Hours Allowed SH × SVR Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours Variable Overhead Variances11-*Spending VarianceEfficiency Variance AH × SVR AH × AR SH × SVR Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours Variable Overhead VariancesSpending variance = AH(AR - SVR)Efficiency variance = SVR(AH - SH)11-*Budget VarianceVolume Variance PFOHR = Predetermined Fixed Overhead Rate SH = Standard Hours Allowed SH × PFOHR Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied Fixed Overhead Variances11-*PFOHR =Applied Fixed Overhead = PFOHR × Standard HoursBudgeted Fixed Overhead Planned Activity in HoursFixed Overhead Recall that fixed overhead costs are applied to products and services using a predetermined fixed overhead rate (PFOHR):11-*Fixed Overhead Variances – A Closer LookBudget VarianceVolume VarianceResults from paying more or less than expected for overhead items.Results from the inability to operate at the activity level planned for the period.Has no significance for cost control.11-*Overhead Cost Performance Report11-*Activity-Based Flexible BudgetThe Cheese Co.’s flexible budget is based on a single cost driver, machine hours11-*Activity-Based Flexible BudgetIf different cost drivers are identified for the different variable costs, an activity-based flexible budget should be prepared with different cost formulas based on the different drivers.11-*Standard Costs and Product Costing11-*Standard Costs and Product Costing11-*A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard PricePrice VarianceQuantity Variance Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Variable overhead Variable overhead spending variance efficiency variance AQ(AP - SP) SP(AQ - SQ) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity 11-*A General Model for Variance Analysis Actual Sales Volume Actual Sales Volume Budgeted Sales Volume × × × Actual Sales Price Budgeted Sales Price Budgeted Sales Price Sales Price VarianceSales Volume Variance ASV(ASP - BSP) BSP(ASV - BSV) ASV = Actual Sales Volume BSP = Budgeted Sales Price ASP = Actual Sales Price BSV = Budgeted Sales Volume 11-*
