Notice that fixed overhead remains constant at each of the production levels, but variable overhead changes based on unit output. The standard overhead rate is the total budgeted overhead of $10,000 divided by the level of activity (direct labor hours) of 2,000 hours. Units of output at 100% is 1,000 candy boxes (units). The following information is the flexible budget Connie’s Candy prepared to show expected overhead at each capacity level. Connie’s Candy also wants to understand what overhead cost outcomes will be at 90% capacity and 110% capacity. Suppose Connie’s Candy budgets capacity of production at 100% and determines expected overhead at this capacity. We continue to use Connie’s Candy Company to illustrate. However, the variable standard cost per unit is the same per unit for each level of production, but the total variable costs will change. Note that at different levels of production, total fixed costs are the same, so the standard fixed cost per unit will change for each production level. The standard overhead cost is usually expressed as the sum of its component parts, fixed and variable costs per unit. To determine the overhead standard cost, companies prepare a flexible budget that gives estimated revenues and costs at varying levels of production. Usually, the level of activity is either direct labor hours or direct labor cost, but it could be machine hours or units of production. The standard overhead rate is calculated by dividing budgeted overhead at a given level of production (known as normal capacity) by the level of activity required for that particular level of production. This is similar to the predetermined overhead rate used previously. In a standard cost system, overhead is applied to the goods based on a standard overhead rate. Determination and Evaluation of Overhead Variance It is likely that the amounts determined for standard overhead costs will differ from what actually occurs. Recall that the standard cost of a product includes not only materials and labor but also variable and fixed overhead.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |