Kế toán, kiểm toán - Chapter 11: Flexible budgeting and the management of overhead and support activity costs

Flexible Budgets

Central Concept

 If you can tell me what your activity was

for the period, I will tell you what your costs and revenue should have been.

 

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Chapter 11Flexible Budgeting and the Management of Overhead and Support Activity CostsFlexible BudgetsHmm! Comparing static budgets with actual costs is like comparing apples and oranges. Static budgets are prepared for a single, planned level of activity. Performance evaluation for overhead is difficult when actual activity differs from the planned level of activity.Flexible Budgets Central Concept If you can tell me what your activity was for the period, I will tell you what your costs and revenue should have been.Advantages of Flexible BudgetsImprove performance evaluation.May be prepared for any activity level in the relevant range.Show revenues and expenses that should have occurred at the actual level of activity. Reveal variances due to good costcontrol or lack of cost control.Preparing a Flexible BudgetNote: There is no flex in the fixed costs.Preparing a Flexible BudgetBudgeted variable Total overhead cost per activity activity unit units ×+Budgeted fixed overhead costTotal budgeted overhead cost=Flexible Budget Performance Report. Overhead Application in a Standard Costing SystemOverhead Application in a Standard Costing SystemChoice of Activity Measure Variable overhead and the activity measure should vary in a similar pattern. Identify variable overhead cost drivers. Examples: machine hours, labor hours, process time. Dollar measures should be avoided as they are subject to price-level changes.Spending VarianceEfficiency Variance AH × SVR AH × AR SH × SVR Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours Variable Overhead VariancesSpending variance = AH(AR - SVR)Efficiency variance = SVR(AH - SH)Variable Overhead Variances – A Closer LookSpending VarianceEfficiency VarianceResults from paying more or less than expected for overhead items and from excessive usage of overhead items.A function of the selected cost driver.It does not reflect overhead control. Budget VarianceVolume Variance PFOHR = Predetermined Fixed Overhead Rate SH = Standard Hours Allowed SH × PFOHR Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied Fixed Overhead VariancesPFOHR =Applied Fixed Overhead = PFOHR × Standard HoursBudgeted Fixed Overhead Planned Activity in Hours Recall that fixed overhead costs are applied to products and services using a predetermined fixed overhead rate (PFOHR):Fixed OverheadOverhead Cost Performance Report

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