ACCT2102 Lecture Notes - Lecture 11: Standard Cost Accounting, Cost Driver, Cost Accounting
OH variances:
Variable OH:
VSV= Variable oh Spending Variance (this is the real control variance for variable overhead)
VSV = Actual Total V OH - (Budgeted V OH Rate * Actual Quantity of Base)
Comparison of:
A) the actual total variable overhead cost ($$)
And
B) the variable overhead cost that should have been incurred for the actual quantity of the allocation used
(AQ*v oh rate per unit)
VSV is the result of paying more or less than expected per unit (?) of the actual quantity of cost driver (for
variable overhead items).
VEV = Variable OH Efficiency Variance (It has nothing to do with efficient or inefficient use of variable
overhead items)
VEV = (AQ of base - SQ of base allowed) * Budgeted V OH Rate
Comparison of:
A) The variable overhead cost that should have been incurred for the actual quantity (AQ * v oh rate per
unit) of the allocation based used for the actual output =
And
B) The variable OH cost that should have been incurred (SQ allowed * v oh rate per unit) for the standard
quantity of the allocation base allowed for the actual output
VEV is the result of using more or less of the actual variable overhead cost driver than the standard quantity
allowed (for actual production).
Fixed overhead
Fixed Budget (spending) Variance (Fixed BV) is a result of paying more or less than budgeted for fixed
overhead items. This is the real control variance for fixed overhead because it compares actual expenditures
with budgeted fixed overhead costs.
The budget for fixed OH (including the flexible budget) is the ‘lump sum’ of the budgeted fixed cost.
Production Volume Variance (PVV) is the “denominator-level variance” is a result of operating at an
actual output activity level that is different from the planned output activity level (the denominator capacity).
2 different purposes of the cost accounting system:
1) for cost management purposes, the cost accounting system recognizes that fixed overhead does not
change as production activity varies.
2) For product-costing purposes, budgeted fixed overhead is divided by planned activity to obtain a
standard fixed overhead rate.
If the use of the base (standard quantity for standard costing) does not equal the budgeted quantity
(denominator capacity) used in the calculation of budgeted F OH rate, a variance will arise. For standard
costing, this variance is called Production Volume Variance (PVV).
Fixed’s overhead’s Production Volume Variance is the only variance that is uncontrollable. In fixed
overhead, it is not part of the flexible budget variance. Only fixed budget variance is.
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Document Summary
Vsv= variable oh spending variance (this is the real control variance for variable overhead) Vsv = actual total v oh - (budgeted v oh rate * actual quantity of base) Comparison of: the actual total variable overhead cost (22513) And: the variable overhead cost that should have been incurred for the actual quantity of the allocation used (aq*v oh rate per unit) Vsv is the result of paying more or less than expected per unit (?) of the actual quantity of cost driver (for variable overhead items). Vev = variable oh ef ciency variance (it has nothing to do with ef cient or inef cient use of variable overhead items) Vev = (aq of base - sq of base allowed) * budgeted v oh rate. Comparison of: the variable overhead cost that should have been incurred for the actual quantity (aq * v oh rate per unit) of the allocation based used for the actual output =
