This chapter presents the following content: The management accountant’s role in decision making, characteristics of relevant information, accept or reject a special order, make or buy a product, outsourcing decisions, add or delete a product or department, joint products: sell or process further,. | Lecture 20: Flexible Budget, Overhead Cost variance and Management Control. Learning Objectives Prepare a flexible budget and explain the advantages of the flexible budget approach over the static budget approach. Prepare a performance report for both variable and fixed overhead costs using the flexible budget approach. Use a flexible budget to prepare a variable overhead performance report containing only a spending variance Use a flexible budget to prepare a variable overhead performance report containing both a spending and an efficiency variance. Compute the predetermined overhead rate and apply overhead to products in a standard cost system. Compute and interpret the fixed overhead budget and volume variances. 2 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. 3 11-3 3 When the flexible budget is based on hours of activity, the quantity of hours chosen can be based on actual hours or standard hours allowed for the actual output. If actual hours are used, only a spending variance can be computed. If both the actual and standard hours are used, both a spending and an efficiency variance can be computed. 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 $. 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 – Example 4 11-4 4 We can illustrate the computation of variable overhead spending and efficiency variances with an example. Assume the following: 1. ColaCo’s actual production for the period required 3,200 standard machine hours. 2. Actual . | Lecture 20: Flexible Budget, Overhead Cost variance and Management Control. Learning Objectives Prepare a flexible budget and explain the advantages of the flexible budget approach over the static budget approach. Prepare a performance report for both variable and fixed overhead costs using the flexible budget approach. Use a flexible budget to prepare a variable overhead performance report containing only a spending variance Use a flexible budget to prepare a variable overhead performance report containing both a spending and an efficiency variance. Compute the predetermined overhead rate and apply overhead to products in a standard cost system. Compute and interpret the fixed overhead budget and volume variances. 2 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. 3 11-3 3 When the flexible budget is .
