standard costing Flashcards
(33 cards)
what are overhead costs?
indirect or overhead costs cannot be traced directly to a cost object as they are common to several cost objects
fixed overheads under marginal costing
when using marginal costing we treat the fixed cost a period expense, therefore we are only concerned with the difference in the expected expenditure (budgeted) and the actual expenditure (known as the fixed overhead expenditure variance)
what is the fixed overhead expenditure variance?
the difference in the expected expenditure (budgeted) and the actual expenditure
formula for the fixed overhead expenditure variance
= expected expenditure - actual expenditure
standard absorption costing
- fixed overhead should be allocated to products and included in closing inventory valuations
- standard absorption costing systems should use predetermined fixed overhead rates, often based on standard hrs
how to calculate predetermined overhead rate (POHR)?
POHR = (annual budgeted fixed overheads) / (annual budgeted activity)
POHR gets applied to each unit of output
how to calculate overhead applied?
overhead applied = POHR x actual activity
how do you calculate total fixed overhead variance?
total fixed overhead variance = overhead applied - actual expenditure
the difference between what we incurred and what the accounts are showing (i.e. what have we absorbed)
why does expenditure variance happen?
the actual expenditure is different to the budgeted expenditure
why does volume variance happen?
actual production is different to budgeted production
how do you calculate volume variance?
= budgeted volume at standard absorption rate per unit - actual volume at standard absorption rate per unit
or
= (budgeted output x POHR) - (actual output x POHR)
what is the difference between standard variable and standard absorption costing?
variable costing:
- variable overhead variances calculated
- fixed manufacturing o/h not allocated to products - charged as an expense in period incurred
- fixed o/h expenditure variance calculated
absorption costing:
- variable o/h variances calculated
- fixed o/h allocated to products using predetermined overhead rate
- total fixed o/h and expenditure and volume variances calculated
how do you calculate the total variable overhead variance?
= standard cost of production - actual cost of production
formula for the variable overhead expenditure/capacity variance
= AH (SR - AR)
- AH = actual hours
- SR = standard rate
- AR = actual rate
OR
= what it should have cost (AH x SR) - what it did cost (AH x AR)
formula for the variable overhead efficiency variance
= SR (SH - AH)
SR = standard rate
SH = standard hours
AH = actual hours
OR
= what it should’ve used (SR x SH) - what it did use (SR x AH)
what are the volume variances?
- volume capacity variance
- volume efficiency variance
formula for the volume variance
= budgeted volume at standard absorption rate per unit - actual volume at standard absorption rate per unit
= (budgeted output x POHR) - (actual output x POHR)
why do we have volume variances?
why was our actual production different than budgeted?
- was it because our labour force worked at a different level of efficiency than expected (volume efficiency variance)
OR
- is it because we have under or over used our capacity? (volume capacity variance)
when does volume efficiency occur?
when the actual number of hours taken to produce the actual output differs from the standard number of hours
volume efficiency formula
= SR (SH - AH)
favourable variance = where it takes less hours to produce the output than it should have done
volume capacity variance formula
= SR (BH - AH)
SR = standard rate
BR = budgeted hours
AH = actual hours
why may favourable/adverse variances occur for fixed overhead expenditure variance?
favourable = costs incurred are less than expected (e.g. saving on heating in summer)
adverse = costs incurred are greater than expected (increase in the cost of power)
why may favourable/adverse variances occur for fixed overhead volume variance?
favourable = production has been greater than budgeted
adverse = production is less than budgeted
why may favourable/adverse variances occur for fixed overhead volume efficiency variance?
favourable = it took less hours to produce units than anticipated
adverse = it took more hours to produce units than anticipated
