Chapter 8 Notes

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Financial Accounting
Course Code
G.Quan Fun

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Chapter 8 Flexible Budgets Variances and Management Control II NotesFlexibleBudget Fixed Overhead Cost VariancesPlanning Fixed Overhead Costscapacitythe quantity of outputs that can be produced from longterm resources available to the companydecisions about capacity are strategic decisions which would include consideration of current capacity forecasted future demand and risks potential alternative uses of idle capacity and ease of disposal of excess capacitycapacity costcost of maintaining certain plant capacityfixed overhead cost it is cost pool grouping all fixed overhead costsproduction denominator level or volumea measure of capacity the denominator can be one of four choicesspecific productionvolume variancea productionvolume variance that results from choosing a particular denominator to represent capacity an inappropriate choice of denominator level will generate a fixed overhead rate that is too low or too highFixed Overhead Cost Variance Calculations and Analysisfixed overhead spending varianceindicates whether more or less was spent on fixed manufacturing overhead than the lumpsum pro forma budgeted amount same as the fixed overhead staticbudget variancefor Level 3 analysis decomposing the flexiblebudget variance into its efficiency and spending components the total flexiblebudget variance is attributed to spending variance because this is the only causeProductionVolume Variance Calculation and Analysisproductionvolume variancea denominatorlevel or outputlevel variance equal to the difference between budgeted fixed overhead and the assigned fixed overhead for the actual quantity of outputsproductionvolume variancebudgeted fixed overheadfixed overhead allocated using budgeted input allowed for actual output units achievedbudgeted fixed overhead rateFlexibleBudget Variable Overhead VariancesVariable Overhead Efficiency Variancevariable overhead efficiency variancea measure of the efficiency with which the cost allocation base is usedvariable overhead efficiency varianceactual units of variable overhead costallocation base used for actual output units achievedbudgeted units of variable overhead costallocation base allowed for actual output units achievedbudgeted variable overhead costallocation rateVariable Overhead Spending Variancevariable overhead spending variancethe difference between actual variable overhead cost per unit of the costallocation base and budgeted variable overhead cost per unit of the costallocation basevariable overhead spendingactual variable overhead cost per uni
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