Ch. 15 - Direct & Overhead Variances Flashcards
For product costing purposes, the total overhead cost variance for the period (also called the total under/overapplied overhead) is equal to…
For product costing purposes, the total overhead cost variance for the period (also called the total under/overapplied overhead) is equal to the difference between actual overhead cost incurred and the standard overhead costs applied to production.
Total overhead cost variance = ____________
Total overhead cost variance = total actual overhead cost – total applied overhead cost
Aka Total overhead cost variance = (total variable overhead + total fixed overhead) – (total overhead application rate x standard labor hours allowed)
total variable overhead cost variance
The difference between actual variable overhead cost incurred and the standard variable overhead cost applied to production; also called over- or underapplied variable overhead for the period.
variable overhead spending variance
The difference between actual variable overhead cost incurred and the flexible budget for variable overhead based on inputs for the period (e.g., actual direct labor hours worked).
variable overhead spending variance = actual variable overhead incurred – flexible budget for variable overhead based on inputs for the period
=(AQ x AP) – (AQ x SP)
=AQ x (AP–SP)
variable overhead efficiency variance
The difference between the flexible budget for variable overhead based on inputs (e.g., actual labor hours worked) and the flexible budget for variable overhead based on outputs (i.e., standard allowed labor hours for units produced).
Simply put, this reflects the efficiency or inefficiency in the use of the activity variable used to apply variable overhead costs to products.
= Flexible budget for variable overhead based on inputs – flexible budget for variable overhead based on outputs
=(AQ x SP) – (SQ x SP)
=SP x (AQ – SQ)
total fixed overhead variance
The difference between actual fixed overhead costs for the period and the standard fixed overhead costs applied to production based on a standard fixed overhead application rate; also called over- or underapplied fixed overhead for the period; this variance can be broken down into a fixed overhead spending variance and a fixed overhead production volume variance.
fixed overhead application rate
A term used for product-costing purposes; the rate at which fixed overhead cost is charged to production per unit of activity (or output).
denominator activity level
The output (activity) level used to establish the predetermined fixed overhead application rate; generally defined as practical capacity; also called the denominator volume.
denominator volume
The output (activity) level used to calculate the predetermined fixed overhead application rate; generally defined as practical capacity; also called the denominator activity level.
theoretical capacity
A measure of capacity (output or activity) that assumes 100% efficiency; maximum possible output (or activity).
practical capacity
Theoretical capacity reduced by normal output losses due to personal time, normal maintenance, and so on; the measure of capacity often recommended for estimating cost-driver rates under ABC and TDABC systems.
budgeted capacity utilization
The planned (forecasted) output for the coming period, usually a year.
normal capacity
The expected average demand per year over an intermediate term—for example, the upcoming three to five years.
FASB ASC 330-10-30
GAAP financial reporting guidance regarding the determination of overhead allocation rates and the treatment of abnormal idle-capacity variances.
resource capacity planning
Procedures used to ensure adequate but not excessive supply of capacity-related resources.
fixed overhead production volume variance
The difference between budgeted (lump-sum) fixed overhead cost for the period and the standard fixed overhead cost applied to production (using the predetermined fixed overhead allocation rate); also called the production volume variance or the denominator volume variance.
production volume variance = budgeted fixed factory overhead cost – standard fixed overhead cost assigned to production
or
=SP x (denominator activity hours – SQ)
Fixed overhead spending variances typically arise when…
fixed overhead spending variances typically arise when the budget procedure for the organization fails to anticipate or incorporate changes in spending for fixed overhead costs.
total overhead spending variance
The difference between actual factory overhead cost incurred during a period and the flexible budget for overhead based on inputs (i.e., based on actual direct labor hours worked during the period).
total flexible budget variance for overhead
The difference between the total actual overhead cost for a period and the flexible budget for total overhead based on output.
Total flexible budget variance for overhead = (actual fixed overhead + actual variable overhead) – (budgeted fixed overhead + [standard allowed direct labor hours x standard variable overhead rate per direct labor hours])
If the net manufacturing cost variance is not considered to be material, then the appropriate treatment at year-end would be to……
If the net manufacturing cost variance is not considered to be material, then the appropriate treatment at year-end would be to close all temporary variance accounts on the balance sheet to COGS
If the net variance is favorable, then it is closed out by crediting (aka reducing) COGS, and debited if unfavorable.
If the net manufacturing cost variance is considered to be material in amount, the net variance should be…..
If the net manufacturing cost variance is considered to be material in amount, the net variance should be allocated to the inventory and COGS accounts.
random variances
Variances beyond the control of management, either technically or financially
systematic variances
Variances that, until corrected, are likely to recur; also called nonrandom variances.
prediction error
A deviation from a standard because of an inaccurate estimation of the amounts for variables used in the standard-setting process.
modeling error
A deviation from the standard because of the failure to include all relevant variables or because of the inclusion of wrong or irrelevant variables in the standard-setting process.
measurement errors
Incorrect numbers resulting from improper or inaccurate accounting systems or procedures.
implementation error
A deviation from standard due to operator errors.
statistical control charts
Charts that set control limits using a statistical procedure.
For product-costing purposes, the total overhead cost variance for a period is equal to the difference between total actual overhead cost incurred and ______
-the product of the standard overhead rate and the standard allowed units of the cost-allocation base
standard overhead cost applied to production
