Overhead Variance Analysis Flashcards

1
Q

What are the complications of O/H analysis?

A
  • Separate variances must be calculated for variance O/H and fixed O/H

Applied O/H costs will change sole on driver O/H consumption and do not represent true changes in O/H consumption.

  • Only one O/H variances are controllable by production supervisor
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2
Q

Variable O/H varies with level of production?

A

TRUE!

The variances reflect both difference in:

  • Unit cost of variable O/H
  • Quantities of variable O/H used

Spending variances are calculated in a manner similar to rate-type variances.

Efficiency variances are calculated in a manner similar to quantity-type variances

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3
Q

What is spending variance?

A

Variance due to price changes in indirect material, labor, and poor budget estimates

  • Controllable variance
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4
Q

What is efficiency variance?

A

Variance due to variations in efficiency of the base used to allocate O/H (i.e. direct labor hours, direct labor dollars)

  • Often a controllable variance
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5
Q

What is the budget (spending) variance?

A

variance due to price differences in the total fixed O/H costs and the budget.

The difference between the estimated fixed O/H and the actual total fixed O/H.

Is controllable

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6
Q

What is the four-way variance analysis?

A

Comprised of the two variable O/H variances (efficiency and variable spending) and the two fixed O/H variances as desired in this lesson.

  • Most detailed
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7
Q

What is the three-way analysis?

A

Combines the variable O/H spending variance and the fixed O/H budget variance into a single variance.

Often referred to as the “total spending variance”

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8
Q

What at the two-way variance method?

A

Combines the total O/H spending variance and the fixed O/H spend variance into a single variance

of ten referred to as the “controllable or flexible budget variance”

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