Download presentation
Presentation is loading. Please wait.
Published byMarilynn Chambers Modified over 9 years ago
1
@ 2012, Cengage Learning Performance Evaluation Using Variances from Standard Costs LO 4 – Computing Factory Overhead Variances
2
Factory Overhead Variances Factory overhead costs are more difficult to analyze than direct labor and materials costs. This is because factory overhead costs have fixed and variable cost elements. LO 4
3
Factory Overhead Flexible Budget LO 4
4
Factory Overhead Flexible Budget LO 4 Factory Overhead Rate Budgeted Factory Overhead at Normal Capacity Normal Productive Capacity = $30,000 5,000 direct labor hours Factory Overhead Rate = Factory Overhead Rate $6.00 per direct labor hour =
5
Variable Factory Overhead Rate = Budgeted Variable Overhead at Normal Capacity Normal Productive Capacity Variable Factory Overhead Rate = $3.60 per direct labor hour Factory Overhead Flexible Budget LO 4 $18,000 5,000 direct labor hours Variable Factory Overhead Rate =
6
Fixed Factory Overhead Rate = Budgeted Fixed Overhead at Normal Capacity Normal Productive Capacity Fixed Factory Overhead Rate = $2.40 per direct labor hour Factory Overhead Flexible Budget LO 4 $12,000 5,000 direct labor hours Fixed Factory Overhead Rate =
7
Factory Overhead Variances Variances from standard for factory overhead cost result from: 1.Actual variable factory overhead cost greater or less than budgeted variable factory overhead for actual production 2.Actual production at a level above or below 100% of normal capacity LO 4
8
Variable Factory Overhead Controllable Variance Actual Variable Factory Overhead = Budgeted Variable Factory Overhead – Variable Factory Overhead Controllable Variance Standard Hours for Actual Units Produced Variable Factory Overhead Rate x LO 4
9
Budgeted Variable Factory Overhead $14,400 Variable Factory Overhead Controllable Variance LO 4 = Variable Factory Overhead Controllable Variance $10,400 – $14,400 Actual Variable Factory Overhead = – Variable Factory Overhead Controllable Variance = – $4,000 Favorable Variance 4,000 direct labor hours x $3.60
10
Factory Overhead Volume Variance The fixed factory overhead volume variance is the difference between the budgeted fixed overhead at 100% of normal capacity, and the standard fixed overhead for the actual production achieved during the period. LO 4
11
Fixed Factory Overhead Volume Variance Standard Hours for 100% of Normal Capacity = Standard Hours for Actual Units Produced Fixed Factory Overhead Volume Variance – Fixed Factory Overhead Rate x = Fixed Factory Overhead Volume Variance 5,000 direct labor hours 4,000 direct labor hours x $2.40– = Fixed Factory Overhead Volume Variance $2,400 Unfavorable Variance LO 4
12
Fixed Factory Overhead Volume Variance
13
Total actual factory overhead$22,400 Factory overhead applied (4,000 hours x $6 per hour) 24,000 Total factory overhead cost variance (favorable) $ (1,600) F LO 4 Reporting Factory Overhead Variances
14
An unfavorable volume variance may be due to factors such as the following: Failure to maintain an even flow of work Machine breakdowns Work stoppages caused by lack of materials or skilled labor Lack of enough sales orders to keep the factory operating at normal capacity LO 4 Fixed Factory Overhead Volume Variance
15
Reporting Factory Overhead Variances LO 4
16
Factory Overhead $10,400 + $12,000 Applied factory overhead24,000 4,000 hours x $6.00 per hour Actual factory overhead22,400 Factory Overhead Account
17
LO 4 Overapplied factory overhead Factory Overhead Applied factory overhead24,000 Actual factory overhead22,400 Balance, June 301,600
18
Factory Overhead Account LO 4 Controllable Variance Applied Factory Overhead $24,000 Volume Variance Budgeted Factory Overhead for Amount Produced Variable factory OH$14,400 Fixed factory OH 12,000 Total$26,400 Actual factory overhead $22,400 – $4,000 F $2,400 U Actual Factory Overhead $22,400 Applied factory overhead $24,000
19
Factory Overhead Account LO 4 Applied Factory Overhead $24,000 Budgeted Factory Overhead for Amount Produced Variable factory OH$14,400 Fixed factory OH 12,000 Total$26,400 Actual factory overhead $22,400 Applied factory overhead $24,000 Total Factory Overhead Cost Variance – $1,600 F Actual Factory Overhead $22,400
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.