Module 6 : Overhead Cost Variances

Question 1

Variable overhead costs

Answer 1

To effectively plan variable overhead costs for a product or service:
 Managers must focus on the activities that create a superior product or service for their customers
 And eliminate activities that do not add value

Question 2

Fixed overhead costs

Answer 2

Planning fixed overhead costs is similar to planning variable overhead costs:
 Undertake only essential activities and then plan to be efficient in that undertaking
 But there is an additional strategic issue when it comes to planning fixed overhead costs: choosing the appropriate level of capacity or investment that will benefit the company in the long run

Question 3

Indirect cost - fixed cost

Answer 3

remain unchanged in total for a
given time period, despite wide changes in the related level of total activity or volume of output
–> Fixed costs are always indirect costs

Question 4

Indirect cost - Variable cost

Answer 4

change in total in proportion to changes in the related level of total activity or volume of output

Question 5

spending variance

Answer 5

between the actual amount spent on an expense (e.g., labor, materials, overhead) and the amount that was budgeted or standard for that expense.

Question 6

spending variance : calculation

Answer 6

ActualCost−Budgeted/StandardCost

Question 7

Efficiency variance

Answer 7

measures how efficiently a company uses inputs (such as labor, materials, or machine hours) relative to the standard or expected usage

Question 8

Efficience variance : calculation

Answer 8

(ActualQuantityUsed−StandardQuantityAllowed)×StandardPrice/Rate

Question 9

Variable overhead flexible-budget variance

Answer 9

measures the difference between actual variable overhead costs incurred and flexible-budget variable overhead amounts

Question 10

Variable overhead spending variance

Answer 10

is the difference between the actual variable overhead cost per unit of the cost- allocation base and the budgeted variable overhead cost per unit of the cost-allocation base, multiplied by the actual quantity of variable overhead cost-allocation base used

Question 11

Variable overhead efficiency variance

Answer 11

is the difference between the actual quantity of the cost-allocation base used and budgeted quantity of the cost-allocation base that should have been used to produce the actual output, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base

Question 12

Production-Volume-Variance

Answer 12

Fixed overhead cost (flexible Budget) - Allocated fixed overhead costs for the actual output

Question 13

Variance analysis can be used to…

Answer 13

examine overhead costs and make decisions about pricing, managing costs, and the mix of products