Académique Documents
Professionnel Documents
Culture Documents
Flexible Budgeting
and Analysis of
Overhead Costs
McGraw-Hill/Irwin
Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Learning Objective 1
11-2
Flexible Budgets
Static budgets are
prepared for a single,
planned level of
activity.
Hmm! Comparing
static budgets
with actual costs
is like comparing
apples and oranges.
Performance
evaluation for overhead
is difficult when actual
activity differs from the
planned level of
activity.
11-3
Flexible Budgets
Consider
the following
example from
the Cheese
Company . . .
Hmm! Comparing
static budgets
with actual costs
is like comparing
apples and oranges.
11-4
10,000
$ 40,000
30,000
5,000
Actual
Results
Variances
8,000
2,000 U
U = Unfavorable variance
Cheese Company was
unable to achieve the
budgeted level of activity.
12,000
2,000
$ 89,000
11-5
Results
Variances
10,000
8,000
2,000 U
$ 40,000
30,000
5,000
$ 34,000
25,500
3,800
$6,000 F
4,500 F
1,200 F
Fixed costs
we
done a good
Depreciation
Insurance
2,000
2,000
$ 89,000
$ 77,300
0
0
$11,700 F
11-6
I do know that
actual activity is below
budgeted activity which
is unfavorable.
But shouldnt variable costs
be lower if actual activity
is below budgeted activity?
11-7
we must
the budget to the
actual level of activity.
11-8
Flexible Budgets
Central Concept
11-9
11-10
Learning Objective 2
11-11
11-12
Total
Fixed
Cost
Machine hours
Variable costs
Indirect labor
Indirect material
Power
Total variable cost
Fixed costs
Depreciation
Insurance
Total fixed cost
Total overhead costs
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
8,000
10,000
12,000
4.00
3.00
0.50
7.50
$12,000
2,000
11-13
Total
Fixed
Cost
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
12,000
Variable8,000
costs are10,000
expressed
as
a constant amount per hour.
4.00
3.00
0.50
7.50
$ 32,000
24,000
Fixed
costs are expressed as a
4,000
total amount that does not
$ 60,000
$12,000
2,000
11-14
Total
Fixed
Cost
Machine hours
Variable costs
Indirect labor
Indirect material
Power
Total variable cost
Fixed costs
Depreciation
Insurance
Total fixed cost
Total overhead costs
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
8,000
4.00
3.00
0.50
7.50
10,000
12,000
$ 32,000
24,000
4,000
$ 60,000
$12,000
2,000
$ 12,000
2,000
$ 14,000
$ 74,000
11-15
Total
Fixed
Cost
Machine hours
Variable costs
Indirect labor
Indirect material
Power
Total variable cost
Fixed costs
Depreciation
Insurance
Total fixed cost
Total overhead costs
4.00
3.00
0.50
7.50
$12,000
2,000
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
8,000
10,000
12,000
$ 32,000
24,000
4,000
$ 60,000
$ 40,000
30,000
5,000
$ 75,000
$ 48,000
36,000
6,000
$ 90,000
$ 12,000
2,000
$ 14,000
$ 74,000
$ 12,000
2,000
$ 14,000
$ 89,000
$ 12,000
2,000
$ 14,000
$ 104,000
11-16
Total
Fixed
Cost
Machine hours
Variable costs
IndirectThere
labor is no
Note:
material
inIndirect
the
fixed
costs.
Power
Total variable cost
$
Fixed costs
Depreciation
Insurance
Total fixed cost
Total overhead costs
4.00
flex
3.00
0.50
7.50
$12,000
2,000
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
8,000
10,000
12,000
$ 32,000
24,000
4,000
$ 60,000
$ 40,000
30,000
5,000
$ 75,000
$ 48,000
36,000
6,000
$ 90,000
$ 12,000
2,000
$ 14,000
$ 74,000
$ 12,000
2,000
$ 14,000
$ 89,000
$ 12,000
2,000
$ 14,000
$ 104,000
11-17
Total
Fixed
Cost
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
Machine hours
8,000
10,000
12,000
Total budgeted
Variable costs
Indirect labor
4.00
$ 32,000
overhead cost
Indirect material
3.00
24,000
Power
0.50
Budgeted variable
Total 4,000
Total variable
cost cost
$ per
7.50
$ 60,000
overhead
activity
$ 40,000
30,000
5,000
Budgeted
$ 75,000
$ 48,000
36,000
6,000
fixed
$ 90,000
units
$12,000
2,000
$ 12,000
2,000
$ 14,000
$ 74,000
overhead cost
$ 12,000
2,000
$ 14,000
$ 89,000
$ 12,000
2,000
$ 14,000
$ 104,000
11-18
Flexible Budget
Performance Report
11-19
Flexible Budget
Performance Report
Variable
Cost
Per Hour
Total
Fixed
Costs
Machine hours
Variable costs
Indirect labor
$
Indirect material
Power
Total variable costs $
Fixed Expenses
Depreciation
Insurance
Total fixed costs
Total overhead costs
Flexible
Budget
Actual
Results
8,000
4.00
3.00
0.50
7.50
Variances
0
$ 34,000
25,500
3,800
$ 63,300
$12,000
2,000
$ 12,000
2,000
$ 14,000
$ 77,300
11-20
Flexible Budget
Performance Report
Total
FlexibleVariable
budget
is
Cost
Fixed
prepared
Per for
HourtheCosts
same activity level
Machine hours
(8,000 hours) as
Variable costs
actually$achieved.
Indirect labor
4.00
Indirect material
Power
Total variable costs $
Fixed Expenses
Depreciation
Insurance
Total fixed costs
Total overhead costs
3.00
0.50
7.50
$12,000
2,000
Flexible
Budget
Actual
Results
8,000
8,000
Variances
0
$ 34,000
25,500
3,800
$ 63,300
$ 12,000
2,000
$ 14,000
$ 77,300
11-21
Flexible Budget
Performance Report
Variable
Cost
Per Hour
Total
Fixed
Costs
Machine hours
Variable costs
Indirect labor
$
Indirect material
Power
Total variable costs $
Fixed Expenses
Depreciation
Insurance
Total fixed costs
Total overhead costs
4.00
3.00
0.50
7.50
$12,000
2,000
Flexible
Budget
Actual
Results
8,000
8,000
$ 32,000
24,000
4,000
$ 60,000
$ 34,000
25,500
3,800
$ 63,300
$ 2,000 U
1,500 U
200 F
$ 3,300 U
$ 12,000
2,000
$ 14,000
$ 74,000
$ 12,000
2,000
$ 14,000
$ 77,300
0
0
0
$ 3,300 U
Variances
0
11-22
Flexible Budget
Performance Report
Variable Total
Cost
Fixed
labor
and Costs
Per Hour
Indirect
indirect material have
Machine hours
unfavorable variances
Variable costs
because
costs
Indirect
labor actual
$ 4.00
are
more than3.00
the
Indirect
material
Power
flexible budget 0.50
costs.
Total variable costs $
Fixed Expenses
Depreciation
Insurance
Total fixed costs
Total overhead costs
7.50
$12,000
2,000
Flexible
Budget
Actual
Results
8,000
8,000
$ 32,000
24,000
4,000
$ 60,000
$ 34,000
25,500
3,800
$ 63,300
$ 2,000 U
1,500 U
200 F
$ 3,300 U
$ 12,000
2,000
$ 14,000
$ 74,000
$ 12,000
2,000
$ 14,000
$ 77,300
0
0
0
$ 3,300 U
Variances
0
11-23
Flexible Budget
Performance Report
Variable
Cost
Per Hour
Total
Fixed
Costs
Machine hours
7.50
$12,000
2,000
Flexible
Budget
Actual
Results
8,000
8,000
$ 32,000
24,000
4,000
$ 60,000
$ 34,000
25,500
3,800
$ 63,300
$ 2,000 U
1,500 U
200 F
$ 3,300 U
$ 12,000
2,000
$ 14,000
$ 74,000
$ 12,000
2,000
$ 14,000
$ 77,300
0
0
0
$ 3,300 U
Variances
0
11-24
Learning Objective 3
11-25
Work-in-Process Inventory
Applied
overhead:
Actual hours
x
Predetermined
overhead rate
Difference lies in the
quantity of hours used.
Actual hours
x
Predetermined
overhead rate
Standard Costing
Manufacturing Overhead
Actual
Applied
overhead
overhead:
Standard
allowed hours
x
Predetermined
overhead rate
Work-in-Process Inventory
Applied
overhead:
Standard
allowed hours
x
Predetermined
overhead rate
11-26
Budgeted
Overhead
Planned
Monthly Activity
Predetermined
Overhead Rate
11-27
Learning Objective 4
11-28
Learning Objective 5
11-30
11-31
Flexible Budget
for Variable
Overhead at
Actual Hours
Flexible Budget
for Variable
Overhead at
Standard Hours
AH AR
AH SVR
SH SVR
Spending
Variance
AH
AR
SVR
SH
Efficiency
Variance
Flexible Budget
for Variable
Overhead at
Actual Hours
Flexible Budget
for Variable
Overhead at
Standard Hours
AH AR
AH SVR
SH SVR
Spending
Variance
Efficiency
Variance
11-34
Total budgeted
overhead cost
Budgeted variable
overhead cost per
activity unit
Total budgeted
overhead cost
Total
x activity
units
$2.00 per
machine
hour
=
+
Budgeted fixed
overhead cost
Total
machine
hours
$9,000
11-35
Flexible Budget
for Variable
Overhead at
Actual Hours
3,300 hours
Flexible Budget
for Variable
Overhead at
Standard Hours
3,200 hours
$6,740
$6,600
$6,400
Spending variance
$140 unfavorable
Efficiency variance
$200 unfavorable
11-36
Flexible Budget
for Variable
Overhead at
Actual Hours
3,300 hours
Flexible Budget
for Variable
Overhead at
Standard Hours
3,200 hours
$6,740
$6,600
$6,400
Efficiency Variance
A function of the
selected cost driver.
It does not reflect
overhead control.
11-38
Fixed Overhead
11-39
Fixed
Overhead
Budget
Fixed
Overhead
Applied
SH PFOHR
Budget
Variance
Volume
Variance
11-40
Fixed Overhead
Recall that fixed overhead costs are applied to
products and services using a predetermined fixed
overhead rate (PFOHR):
PFOHR
11-41
PFOHR
$9,000
3,000 machine hours
PFOHR
PFOHR
11-42
11-43
Fixed
Overhead
Budget
Fixed
Overhead
Applied
3,200 hours
$8,450
Budget variance
$550 favorable
$9,000
$9,600
Volume variance
$600 (neither favorable
nor unfavorable)
11-44
Volume Variance
11-46
{
{
3,000 Hours
Planned
Activity
Volume
3,200
Standard
Hours
11-47
Learning Objective 6
11-48
Fixed costs:
Indirect labor:
Inspection
Production supervisor
Set up
Depreciation:
Equipment
Insurance
Property taxes
Total fixed cost
Total overhead cost
11-49
Learning Objective 7
11-50
Total
Fixed
Cost
Machine hours
Variable costs
Indirect labor
Indirect material
Power
Total variable cost
4.00
3.00
0.50
7.50
Fixed costs
Depreciation
$12,000
The
Cheese Co.s flexible
Insurance
2,000
budget
is
based
on
a
single
Total fixed cost
costoverhead
driver,costs
machine hours
Total
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
8,000
10,000
12,000
$ 32,000
24,000
4,000
$ 60,000
$ 40,000
30,000
5,000
$ 75,000
$ 48,000
36,000
6,000
$ 90,000
$ 12,000
2,000
$ 14,000
$ 74,000
$ 12,000
2,000
$ 14,000
$ 89,000
$ 12,000
2,000
$ 14,000
$ 104,000
11-51
4.00
3.00
0.50
7.50
Total
Fixed
Cost
Flexible Budgets
8,000
10,000
12,000
Hours
Hours
Hours
8,000
10,000
12,000
$ 32,000
24,000
4,000
$ 60,000
$ 40,000
30,000
5,000
$ 75,000
$ 48,000
36,000
6,000
$ 90,000
If costs
different cost drivers are identified for the
Fixed
Depreciation
$ 12,000
$ 12,000
$ 12,000
different
variable costs,$12,000
an activity-based
flexible
Insurance
2,000
2,000
2,000
2,000
budget
should be prepared $with
different
cost$ 14,000
Total
fixed cost
14,000
$ 14,000
Total overhead
costs
$ 74,000 drivers.
$ 89,000
$ 104,000
formulas
based on the different
11-52
Learning Objective 8
11-53
Work-in-Process Inventory
Applied
overhead:
Standard
allowed hours
x
Predetermined
overhead rate
11-54
11-55
Learning Objective 9
11-56
Actual Price
Actual Quantity
Standard Price
Price Variance
Materials
price- SP)
variance
AQ(AP
Labor rate variance
AQ =Variable
Actual overhead
Quantity
AP = spending
Actual Price
variance
Standard Quantity
Standard Price
Quantity Variance
Materials
quantity
variance
SP(AQ
- SQ)
Labor efficiency variance
SP
= Standard
Price
Variable
overhead
SQ
= Standard
Quantity
efficiency
variance
11-57
11-58
End of Chapter 11
Im here to
your
budget. Are you ready to
ante up?
11-59