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Managerial Accounting ed 15 Chapter 10A

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Managerial Accounting ed 15 Chapter 10A

Managerial Accounting ed 15 Chapter 10A

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  • 1. PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Appendix 10A Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
  • 2. 10A-2 Learning Objective 4 (Appendix 10A) Compute and interpret the fixed overhead budget and volume variances.
  • 3. 10A-3 Budget variance Fixed Overhead Budget Variance Budget variance Budgeted fixed overhead Actual fixed overhead = – Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead
  • 4. 10A-4 Volume variance Fixed Overhead Volume Variance Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = – Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead
  • 5. 10A-5 FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output SH × FPOHRDH × FPOHR Fixed Overhead Volume Variance Volume variance FPOHR × (DH – SH)= Actual Fixed Overhead Fixed Overhead Applied Budgeted Fixed Overhead Volume variance
  • 6. 10A-6 Computing Fixed Overhead Variances Budgeted production 30,000 units Standard machine-hours per unit 3 hours Budgeted machine-hours 90,000 hours Actual production 28,000 units Standard machine-hours allowed for the actual production 84,000 hours Actual machine-hours 88,000 hours Production and Machine-Hour Data ColaCo
  • 7. 10A-7 Computing Fixed Overhead Variances Budgeted variable manufacturing overhead 90,000$ Budgeted fixed manufacturing overhead 270,000 Total budgeted manufacturing overhead 360,000$ Actual variable manufacturing overhead 100,000$ Actual fixed manufacturing overhead 280,000 Total actual manufacturing overhead 380,000$ ColaCo Cost Data
  • 8. 10A-8 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
  • 9. 10A-9 Predetermined Overhead Rates Fixed component of the predetermined overhead rate $270,000 90,000 Machine-hours = Fixed component of the predetermined overhead rate = $3.00 per machine-hour
  • 10. 10A-10 Applying Manufacturing Overhead Overhead applied Predetermined overhead rate Standard hours allowed for the actual output = × Overhead applied $4.00 per machine-hour 84,000 machine-hours= × Overhead applied $336,000=
  • 11. 10A-11 Computing the Budget Variance Budget variance Budgeted fixed overhead Actual fixed overhead = – Budget variance = $280,000 – $270,000 Budget variance = $10,000 Unfavorable
  • 12. 10A-12 Computing the Volume Variance Volume variance Fixed overhead applied to work in process Budgeted fixed overhead = – Volume variance = $18,000 Unfavorable Volume variance = $270,000 – $3.00 per machine-hour( × $84,000 machine-hours)
  • 13. 10A-13 Computing the Volume Variance FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output Volume variance FPOHR × (DH – SH)= Volume variance = $3.00 per machine-hour (× 90,000 mach-hours – 84,000 mach-hours) Volume variance = 18,000 Unfavorable
  • 14. 10A-14 A Pictorial View of the Variances Fixed Overhead Applied to Work in Process Actual Fixed Overhead Budgeted Fixed Overhead 252,000270,000280,000 Total variance, $28,000 unfavorable Budget variance, $10,000 unfavorable Volume variance, $18,000 unfavorable
  • 15. 10A-15 Fixed Overhead Variances – A Graphic Approach Let’s look at a graph showing fixed overhead variances. We will use ColaCo’s numbers from the previous example.
  • 16. 10A-16 Graphic Analysis of Fixed Overhead Variances Machine-hours (000) Budget $270,000 90 Denominator hours 0 0 Fixed overhead applied at $3.00 per standard hour
  • 17. 10A-17 Graphic Analysis of Fixed Overhead Variances Actual $280,000 Machine-hours (000) Budget $270,000 90 Denominator hours 0 0 Fixed overhead applied at $3.00 per standard hour Budget Variance 10,000 U{
  • 18. 10A-18 Applied $252,000 Machine-hours (000) Budget $270,000 Graphic Analysis of Fixed Overhead Variances 90840 0 Standard hours Fixed overhead applied at $3.00 per standard hour Denominator hours Budget Variance 10,000 U Volume Variance 18,000 U { { Actual $280,000
  • 19. 10A-19 Reconciling Overhead Variances and Underapplied or Overapplied Overhead In a standardIn a standard cost system:cost system: Favorable variances are equivalent to overapplied overhead. The sum of the overhead variances equals the under- or overapplied overhead cost for the period.
  • 20. 10A-20 Predetermined overhead rate (a) 4.00$ per machine-hour Standard hours allowed for the actual output (b) 84,000 machine hours Manufacturing overhead applied (a) × (b) 336,000$ Actual manufacturing overhead 380,000$ Manufacturing overhead underapplied or overapplied 44,000$ underapplied Computation of Underapplied Overhead ColaCo Reconciling Overhead Variances and Underapplied or Overapplied Overhead
  • 21. 10A-21 Computing the Variable Overhead Variances Variable manufacturing overhead rate variance VMRV = (AH × AR) – (AH × SR) = $100,000 – (88,000 hours × $1.00 per hour) = $12,000 unfavorable
  • 22. 10A-22 Computing the Variable Overhead Variances Variable manufacturing overhead efficiency variance VMEV = (AH × SR) – (SH × SR) = $88,000 – (84,000 hours × $1.00 per hour) = $4,000 unfavorable
  • 23. 10A-23 Computing the Sum of All Variances Variable overhead rate variance 12,000$ U Variable overhead efficiency variance 4,000 U Fixed overhead budget variance 10,000 U Fixed overhead volume variance 18,000 U Total of the overhead variances 44,000$ U Computing the Sum of All variances ColaCo
  • 24. 10A-24 End of Appendix 10A