This chapter introduce the standard costs for control: Flexible budgets and manufacturing overhead. In this chapter you will learn: Flexible budgets, Flexible overhead budget: . Williams, overhead application in a standard costing system, calculating overhead cost variances, overhead cost performance report,. | Chapter 11 Standard costs for control: flexible budgets and manufacturing overhead Flexible budgets Used to control overheads A detailed budget that is prepared for a range of levels of activities Compared to a static budget which relates to one specific planned level of activity Often restricted to the practice of flexing overhead costs to various levels of activity Advantages of flexible budgets Allows us to select the most appropriate benchmark for cost control Provides the correct basis for comparing actual and expected costs, for the actual level of activity Input measures and output measures Units of output are not usually a meaningful measure of the level of activity in a multiproduct firm Output can be measured as the standard quantity of input allowed, given actual output Flexible overhead budget Flexible budget report: shows flexible overhead budgets at various levels of activity Formula flexible budget: allows us to calculate total overhead at various levels | Chapter 11 Standard costs for control: flexible budgets and manufacturing overhead Flexible budgets Used to control overheads A detailed budget that is prepared for a range of levels of activities Compared to a static budget which relates to one specific planned level of activity Often restricted to the practice of flexing overhead costs to various levels of activity Advantages of flexible budgets Allows us to select the most appropriate benchmark for cost control Provides the correct basis for comparing actual and expected costs, for the actual level of activity Input measures and output measures Units of output are not usually a meaningful measure of the level of activity in a multiproduct firm Output can be measured as the standard quantity of input allowed, given actual output Flexible overhead budget Flexible budget report: shows flexible overhead budgets at various levels of activity Formula flexible budget: allows us to calculate total overhead at various levels of activity using a formula Flexible overhead budget Overhead application in a standard costing system Overhead is applied to inventory using the standard overhead rate Based on the standard quantity of input allowed, given actual output The activity chosen for the standard overhead rate should be a cost driver Any activity or factor that causes cost to be incurred Calculating variable overhead variances Flexible budgets provide a tool for controlling manufacturing overhead costs Four overhead variances can be calculated to compare the actual overhead cost incurred with the flexible budget Calculating variable overhead cost variances Variable overhead spending variance A measure of the difference between the actual variable overhead and the standard variable overhead rate multiplied by actual activity = Actual variable overhead - (AH x SVR) Where AH = actual direct labour hours SVR = standard variable overhead rate continued Calculating variable overhead cost .
