tailieunhanh - Lecture Managerial accounting: Creating value in a dynamic business environment (9/e): Chapter 11 - Ronald W. Hilton

Chapter 11 - Flexible budgeting and the management of overhead and support activity costs. After completing this chapter, you should be able to: Distinguish between static and flexible budgets and explain the advantages of a flexible overhead budget; prepare a flexible overhead budget, using both a formula and a columnar format; explain how overhead is applied to Work-in-Process Inventory under standard costing;. | Chapter 11 Flexible Budgeting and the Management of Overhead and Support Activity Costs Flexible Budgets Hmm! Comparing static budgets with actual costs is like comparing apples and oranges. 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. Flexible Budgets Central Concept If you can tell me what your activity was for the period, I will tell you what your costs and revenue should have been. Advantages of Flexible Budgets Improve 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 cost control or lack of cost control. Preparing a Flexible Budget Note: There is no flex in the fixed costs. Preparing a Flexible Budget Budgeted variable Total overhead cost per activity activity unit units × + Budgeted fixed overhead cost Total budgeted overhead cost = Flexible Budget Performance Report . Overhead Application in a Standard Costing System Learning Objective 3 Overhead Application in a Standard Costing System 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. Learning Objective 4 Spending Variance Efficiency 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 Variances Spending variance = AH(AR - SVR) Efficiency variance = SVR(AH - SH) Learning Objective 5 Variable Overhead Variances – A Closer Look Spending Variance Efficiency Variance Results from paying more or less than expected for overhead items and from excessive usage of overhead items. A function of the selected cost driver. It does not reflect overhead control. Budget Variance Volume Variance PFOHR = Predetermined Fixed Overhead Rate SH = Standard Hours Allowed SH × PFOHR Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied Fixed Overhead Variances PFOHR = Applied Fixed Overhead = PFOHR × Standard Hours Budgeted Fixed Overhead Planned Activity in Hours Recall that fixed overhead costs are applied to products and services using a predetermined fixed overhead rate (PFOHR): Fixed Overhead Overhead Cost Performance Report