Variable Overhead

Question 1

rate standards

Answer 1

The rate is available portion of the pre-determined overhead rate
Standards for variable manufacturing overheads are usually expressed in terms of direct labour hours or machine hours

Question 2

Activity standards

Answer 2

The activity is the bass use to calculate the predetermined overhead
If directly but ours is the basis for applying overhead to products then the quantity standard for available manufacturing overhead will be the quantity standard for direct labour

Question 3

Spending variance

Answer 3

Expressed in terms of direct labour hours, the variable overheads spending variance compares actual spending on variable overhead to the amount of spending that would be expected, given the actual direct labour hours for the period
The critical assumption is that variable overheads spending is personal to the actual direct labour hours

Question 4

Efficiency variance

Answer 4

When it’s express indirect labour hours the actual direct labour hours I compare to the standard direct labour hours allowed for the actual output.
Difference between variances as a standard rate that is applied to differences between the actual standard hours

Question 5

Standard costs

Answer 5

Advantages:
Possible reduction in production costs
Management by exception
Improve cost control and performance evaluation
Better info for planning and decision-making
Disadvantages:
Emphasis on negative may impact morale
Favourable answers may be misinterpreted
Standard class reports may not be timely
Labour quantity standards plus efficiency variances may not be appropriate