ACC 406 Chapter Notes - Chapter 11: Stabilisation Force In Bosnia And Herzegovina, Variable Cost
28 Jun 2018
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ACC – Chapter 11 – Flexible Budgets and Overhead Analysis
A performance report compares actual costs with budgeted costs
A static budget is a budget for a particular level of activity usually prepared at the
beginning of the period
oCompare the actual costs with the budgeted costs from the master budget to
prepare performance report
A flexible budget enables a firm to compute expected costs for a range of activity levels.
The key to flexible budgeting is knowledge of fixed an variable cost
oBefore the fact – helps managers deal with uncertainty by allowing them to see
the expected outcomes for a range of activity levels. It can be used to generate
financial results for a number of plausible scenarios
oAfter the fact – the budget for the actual level of activity achieved in the period.
Used to compute what costs should have been for the actual level of activity
Flexbile budgets are some times referred to as variable budgets
A difference between the actual amount and the flexible budget amount is the flexible budget
variance
To measure whether or not a manager accomplishes their goals, the static budget is used
Four variance method – 1. Overhead is divided into fixed and variable categories 2. Two
variances are calculated for each category 3. Total variable overhead variance is divided into
the variable overhead spending variance and the variable overhead efficiency variance 4. The
total fixed overhead variance is divided into the fixed overhead spending variance and the fixed
overhead volume variance
Total variable overhead variance is the difference between total actual variable overhead and
applied variable overhead
AH – actual direct labour hours
SH – standard direct labour hours that should have been worked for actual units produced
AVOR – actual variable overhead rate
SVOR – standard overhead rate
The variable overhead spending variance measures the aggregate effect of differences
between the actual variable overhead rate (AVOR) and the standard variable overhead rate
(SVOR)
AVOR = actual overhead rate / actual hours
Variable overhead spending variance = (AVOR x AH) – (SVOR x AH)
= (AVOR – SVOR)xAH
The variable overhead efficiency variance measures the change in the actual variable overhead
that occurs because of efficient or inefficient use of direct labour
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Document Summary
Acc chapter 11 flexible budgets and overhead analysis. A performance report compares actual costs with budgeted costs. A static budget is a budget for a particular level of activity usually prepared at the beginning of the period: compare the actual costs with the budgeted costs from the master budget to prepare performance report. A flexible budget enables a firm to compute expected costs for a range of activity levels. The key to flexible budgeting is knowledge of fixed an variable cost: before the fact helps managers deal with uncertainty by allowing them to see the expected outcomes for a range of activity levels. It can be used to generate financial results for a number of plausible scenarios: after the fact the budget for the actual level of activity achieved in the period. Used to compute what costs should have been for the actual level of activity. Flexbile budgets are some times referred to as variable budgets.
