standard costing

Question 1

what are overhead costs?

Answer 1

indirect or overhead costs cannot be traced directly to a cost object as they are common to several cost objects

Question 2

fixed overheads under marginal costing

Answer 2

when using marginal costing we treat the fixed cost a period expense, therefore we are only concerned with the difference in the expected expenditure (budgeted) and the actual expenditure (known as the fixed overhead expenditure variance)

Question 3

what is the fixed overhead expenditure variance?

Answer 3

the difference in the expected expenditure (budgeted) and the actual expenditure

Question 4

formula for the fixed overhead expenditure variance

Answer 4

= expected expenditure - actual expenditure

Question 5

standard absorption costing

Answer 5

• fixed overhead should be allocated to products and included in closing inventory valuations
• standard absorption costing systems should use predetermined fixed overhead rates, often based on standard hrs

Question 6

how to calculate predetermined overhead rate (POHR)?

Answer 6

POHR = (annual budgeted fixed overheads) / (annual budgeted activity)

POHR gets applied to each unit of output

Question 7

how to calculate overhead applied?

Answer 7

overhead applied = POHR x actual activity

Question 8

how do you calculate total fixed overhead variance?

Answer 8

total fixed overhead variance = overhead applied - actual expenditure

the difference between what we incurred and what the accounts are showing (i.e. what have we absorbed)