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Lecture Managerial accounting for managers - Appendix 11A: Predetermined overhead rates and overhead analysis in a standard costing system

Appendix 11A: Predetermined overhead rates and overhead analysis in a standard costing system. After studying chapter Appendix 10A, you should be able to compute and interpret the fixed overhead budget and volume variances. | Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Appendix 11A Appendix 11A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Learning Objective 11-4 Compute and interpret the fixed overhead volume and budget variances. Learning objective 11-4 is to compute and interpret the fixed overhead budget and volume variances. Volume variance Fixed Overhead Volume Variance Fixed Overhead Applied Actual Fixed Overhead Budgeted Fixed Overhead Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = – The volume variance is budgeted fixed overhead minus the fixed overhead applied to work in process. FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output SH × FR DH × FR Fixed Overhead Volume Variance Volume variance FPOHR × (DH – SH) = Fixed Overhead Applied Actual Fixed Overhead Budgeted Fixed Overhead Volume variance The volume variance | Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Appendix 11A Appendix 11A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Learning Objective 11-4 Compute and interpret the fixed overhead volume and budget variances. Learning objective 11-4 is to compute and interpret the fixed overhead budget and volume variances. Volume variance Fixed Overhead Volume Variance Fixed Overhead Applied Actual Fixed Overhead Budgeted Fixed Overhead Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = – The volume variance is budgeted fixed overhead minus the fixed overhead applied to work in process. FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output SH × FR DH × FR Fixed Overhead Volume Variance Volume variance FPOHR × (DH – SH) = Fixed Overhead Applied Actual Fixed Overhead Budgeted Fixed Overhead Volume variance The volume variance can also be computed by multiplying the fixed portion of the predetermined overhead rate times the difference between denominator hours and standard hours. The equation on the prior slide and this equation result in identical answers. Both variance computations will be demonstrated in the forthcoming example. Budget variance Fixed Overhead Budget Variance Budget variance Budgeted fixed overhead Actual fixed overhead = – Fixed Overhead Applied Actual Fixed Overhead Budgeted Fixed Overhead The equation for computing the budget variance is shown on this slide. It is simply the difference between the actual fixed manufacturing overhead and the budgeted fixed manufacturing overhead for the period. Predetermined Overhead Rates Predetermined overhead rate Estimated total manufacturing overhead cost Estimated total amount of the allocation base = Predetermined overhead rate $360,000 90,000 Machine-hours = Predetermined overhead rate = $4.00 per machine-hour The predetermined overhead rate