Garrison Noreen Brewer 11th Edition Chapter 11 - Study For All

1、11th EditionChapter 11Flexible Budgets and Overhead AnalysisChapter ElevenStatic Budgets and Performance Reports Static budgetsare prepared fora single, plannedlevel of activity. Performance evaluation is difficult when actual activity differs from the planned level of activity.Hmm! Comparingstatic

2、budgets withactual costs is likecomparing applesand oranges.Flexible BudgetsImprove performance evaluation.May be prepared for any activity level in the relevant range.Show costs that should have beenincurred at the actual level ofactivity, enabling “apples to apples”cost comparisons.Reveal variance

3、s related tocost control.Lets look at CheeseCo.CheeseCoStatic Budgets and Performance ReportsCheeseCoStatic Budgets and Performance ReportsU = Unfavorable variance CheeseCo was unable to achieve the budgeted level of activity. CheeseCoStatic Budgets and Performance ReportsCheeseCoF = Favorable varia

4、nce that occurs when actual costs are less than budgeted costs.Static Budgets and Performance ReportsSince cost variances are favorable, havewe done a good job controlling costs?CheeseCoStatic Budgets and Performance ReportsI dont think Ican answer thequestion usinga static budget.Actual activity is

5、 belowbudgeted activity. So, shouldnt variable costsbe lower if actual activityis lower?Static Budgets and Performance ReportsThe relevant question is . . .“How much of the favorable cost variance is due to lower activity, and how much is due to good cost control?”To answer the question,we mustthe b

6、udget to theactual level of activity. Static Budgets and Performance ReportsPreparing a Flexible Budget To a budget we need to know that:Total variable costs changein direct proportion to changes in activity.Total fixed costs remainunchanged within therelevant range. FixedVariablePreparing a Flexibl

7、e Budget Lets prepare budgets for CheeseCo.Preparing a Flexible BudgetFixed costs areexpressed as atotal amount.Variable costs are expressed as a constant amount per hour.$40,000 10,000 hours is$4.00 per hour.CheeseCoPreparing a Flexible Budget $4.00 per hour 8,000 hours = $32,000 CheeseCoPreparing

8、a Flexible BudgetCheeseCoPreparing a Flexible BudgetTotal fixed costsdo not change inthe relevant range.CheeseCoQuick Check What should be the total overhead costs for the Flexible Budget at 12,000 hours?a. $92,500.b. $89,000.c. $106,800.d. $104,000. What should be the total overhead costs for the F

9、lexible Budget at 12,000 hours?a. $92,500.b. $89,000.c. $106,800.d. $104,000.Quick Check Total overhead cost = $14,000 + $7.50 per hour 12,000 hours = $14,000 + $90,000 = $104,000Preparing a Flexible Budget Lets prepare a budget performance report for CheeseCo.Flexible Budget Performance ReportChees

10、eCoFlexible budget is prepared for thesame activity level (8,000 hours) as actually achieved.Flexible Budget Performance ReportQuick Check What is the variance for indirect labor when the flexible budget for 8,000 hours is compared to the actual results?a. $2,000 Ub. $2,000 Fc. $6,000 Ud. $6,000 F W

11、hat is the variance for indirect labor when the flexible budget for 8,000 hours is compared to the actual results?a. $2,000 Ub. $2,000 Fc. $6,000 Ud. $6,000 FQuick Check CheeseCoFlexible Budget Performance ReportQuick Check What is the variance for indirect material when the flexible budget for 8,00

12、0 hours is compared to the actual results?a. $1,500 Ub. $1,500 Fc. $4,500 Ud. $4,500 F What is the variance for indirect material when the flexible budget for 8,000 hours is compared to the actual results?a. $1,500 Ub. $1,500 Fc. $4,500 Ud. $4,500 FQuick Check CheeseCoFlexible Budget Performance Rep

13、ortRemember the question: “How much of the total variance is due to lower activity and how much isdue to cost control?”Flexible Budget Performance ReportStatic Budgets and Performance How much of the $11,650 favorable variance is due to lower activity and how much is due to cost control?Difference b

14、etween original static budgetand actual overhead = $11,650 F.Overhead Variance AnalysisLets place the flexible budget for 8,000 hours here.Flexible Budget Performance ReportOverhead Variance AnalysisThis $15,000F variance is due to lower activity. ActivityThis $3,350Uvariance is dueto poor cost cont

15、rol.Cost controlFlexible Budget Performance ReportThe Measure of Activity A Critical ChoiceThree importantfactors in selecting anactivity base for an overheadflexible budgetActivity base andvariable overheadshould becausally related.Activity base shouldnot be expressedin dollars orother currency.Act

16、ivity base shouldbe simple andeasily understood.Variable Overhead Variances A Closer LookIf flexible budgetis based onactual hoursIf flexible budgetis based onstandard hoursOnly a spendingvariance can becomputed.Both spendingand efficiencyvariances can be computed. ColaCos actual production for the

17、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 standar

18、d hours allowed to calculate the variable overheadefficiency variance.Variable Overhead Variances Example Actual Flexible Budget Variable for Variable Overhead Overhead at Incurred Actual HoursAH SRAH ARSpending VarianceSpending variance = AH(AR SR)Variable Overhead VariancesAH = Actual hoursAR = Ac

19、tual variable overhead rateSR = Standard variable overhead rate Actual Flexible Budget Variable for Variable Overhead Overhead at Incurred Actual Hours3,300 hours$2.00 per hour= $6,600$6,740Spending Variance= $140 unfavorableVariable Overhead Variances ExampleVariable Overhead Variances A Closer Loo

20、kSpending VarianceResults from paying moreor less than expected foroverhead items and from excessive usage ofoverhead items.Now, lets use the standard hours allowed, along with the actual hours, to compute the efficiency variance. AH SR AH ARSpending variance = AH(AR - SR)Efficiency variance = SR(AH

21、 - SH) SH SR Spending VarianceEfficiencyVariance Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours Variable Overhead Variances 3,300 hours 3,200 hours $2.00 per hour $2.00 per hour Variable Overhead Varianc

22、es Example$6,740$6,600$6,400Spending variance$140 unfavorableEfficiency variance$200 unfavorable$340 unfavorable flexible budget total variance Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours Efficiency V

23、arianceControlled bymanaging theoverhead cost driver.Variable Overhead Variances A Closer LookQuick 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. T

24、he predetermined variable overhead rate is $5 per direct labor hour. What was the spending variance?a. $450 Ub. $450 Fc. $700 Fd. $700 U 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 l

25、abor hours worked were 2,050. The predetermined variable overhead rate is $5 per direct labor hour. What was the spending variance?a. $450 Ub. $450 Fc. $700 Fd. $700 UQuick Check Spending variance = AH (AR - SR) = Actual variable overhead incurred (AH SR) = $10,950 (2,050 hours $5 per hour) = $10,95

26、0 $10,250 = $700 UQuick 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 wa

27、s the efficiency variance?a. $450 Ub. $450 Fc. $250 Fd. $250 U 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

28、$5 per direct labor hour. What was the efficiency variance?a. $450 Ub. $450 Fc. $250 Fd. $250 UQuick Check Efficiency variance = SR (AH SH) = $5 per hour (2,050 hours 2,100 hours) = $250 F 2,050 hours 2,100 hours $5 per hour $5 per hour Quick Check Summary Actual Flexible Budget Flexible Budget Vari

29、able for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours $10,950$10,250$10,500Spending variance$700 unfavorableEfficiency variance$250 favorable$450 unfavorable flexible budget total varianceActivity-based Costingand the Flexible BudgetIt is unlikely that

30、allvariable overhead will bedriven by a single activity.Activity-based costingcan be used when multipleactivity bases drivevariable overhead costs.Overhead Rates and Overhead AnalysisOverhead from theflexible budget for thedenominator level of activityPOHR =Recall that overhead costs are assigned to

31、 products and services using a predetermined overhead rate (POHR):Assigned Overhead = POHR Standard ActivityDenominator level of activityThe predetermined overhead ratecan be broken down into fixedand variable components.The variablecomponent is usefulfor preparing and analyzingvariable overheadvari

32、ances.The fixedcomponent is usefulfor preparing and analyzingfixed overheadvariances.Overhead Rates and Overhead AnalysisNormal versus Standard Cost SystemsIn a normal costsystem, overhead isapplied to work inprocess based onthe actual numberof hours workedin the period.In a standard costsystem, ove

33、rhead isapplied to work inprocess based onthe standard hoursallowed for the outputof the period.Budget VarianceVolumeVarianceFR = Standard Fixed Overhead RateSH = Standard Hours AllowedDH = Denominator Hours SH FR Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied Fixed Over

34、head VariancesDH FR ColaCo prepared this budget for overhead:Overhead Rates and OverheadAnalysis ExampleTotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,0006,000$ ?9,000$ ?4,0008,000?9,000?ColaCo applies overhead basedon machine-hour activity.Lets calculate o

35、verhead rates.Rate = Total Variable Overhead Machine HoursThis rate is constant at all levels of activity.TotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,000 6,000$ 2.00$ 9,000$ ?4,000 8,000 2.00 9,000 ? ColaCo prepared this budget for overhead:Overhead Rate

36、s and OverheadAnalysis ExampleTotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,000 6,000$ 2.00$ 9,000$ 3.00$ 4,000 8,000 2.00 9,000 2.25 Rate = Total Fixed Overhead Machine HoursThis rate decreases when activity increases. ColaCo prepared this budget for over

37、head:Overhead Rates and OverheadAnalysis ExampleTotalVariableTotalFixedMachineVariableOverheadFixedOverheadHoursOverheadRateOverheadRate3,000 6,000$ 2.00$ 9,000$ 3.00$ 4,000 8,000 2.00 9,000 2.25 The total POHR is the sum ofthe fixed and variable ratesfor a given activity level. ColaCo prepared this

38、 budget for overhead:Overhead Rates and OverheadAnalysis Example ColaCos actual production required 3,200 standard machine hours. Actual fixed overhead was $8,450. The predetermined overhead rate is based on 3,000 machine hours.Fixed Overhead Variances ExampleOverhead VariancesNow lets turn our atte

39、ntion to calculating fixed overhead variances. Fixed Overhead Variances ExampleBudget variance$550 favorable$8,450$9,000 Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied Fixed Overhead Variances A Closer LookBudget VarianceResults from spendingmore or less thanexpected for

40、 fixedoverhead items.Now, lets use the standard hours allowed to compute the fixed overhead volume variance. 3,200 hours $3.00 per hour Budget variance$550 favorableFixed Overhead Variances Example$8,450$9,000$9,600Volume variance$600 favorable SH FR Actual Fixed Fixed Fixed Overhead Overhead Overhe

41、ad Incurred Budget Applied Volume Variance A Closer LookVolumeVarianceResults when standard hoursallowed for actual output differsfrom the denominator activity.Unfavorablewhen standard hours denominator hoursVolume Variance A Closer LookVolumeVarianceResults when standard hoursallowed for actual out

42、put differsfrom the denominator activity.Unfavorablewhen standard hours denominator hoursDoes not measure over- or under spendingIt results from treating fixedoverhead as if it were avariable cost.Quick Check Yoder Enterprises actual production for the period required 2,100 standard direct labor hou

43、rs. Actual fixed overhead for the period was $14,800. The budgeted fixed overhead was $14,450. The predetermined fixed overhead rate was $7 per direct labor hour. What was the budget variance?a. $350 Ub. $350 Fc. $100 Fd. $100 U Yoder Enterprises actual production for the period required 2,100 stand

44、ard direct labor hours. Actual fixed overhead for the period was $14,800. The budgeted fixed overhead was $14,450. The predetermined fixed overhead rate was $7 per direct labor hour. What was the budget variance?a. $350 Ub. $350 Fc. $100 Fd. $100 UQuick Check Budget variance = Actual fixed overhead

45、Budgeted fixed overhead = $14,800 $14,450 = $350 UQuick Check Yoder Enterprises actual production for the period required 2,100 standard direct labor hours. Actual fixed overhead for the period was $14,800. The budgeted fixed overhead was $14,450. The predetermined fixed overhead rate was $7 per direct labor hour. What was the volume variance?a. $250 Ub. $250 Fc. $100 Fd. $100 U Yoder Enterprises actual production for the period required 2,100 standard direct labor hours. Actual fixed overhead for the period was $14,800. The budgeted fixed overhead was $14,450.