lecture 6.ppt

1、1,LECTURE 6,A. STANDARD COSTING OVERHEADS B. DISPOSITION OF VARIANCES,2,A. STANDARD COSTING - OH,Topic introduced by: (1)Comparing standard costing variances for OH with variances for DM, DL (2)Comparing OH under standard costing with OH under normal costing,3,1. STD COSTING OH COMPARED WITH DM, DL,

2、4,1.1 COMPARE WITH LAST WEEKs LECTURE,5,Price variances for both fixed and variable OH (Meaning same as for DM, DL) Efficiency variances for variable OH only (Meaning same as for DM, DL) Additional fixed OH volume variance,6,1.2 DEFINITIONS,OH price (spending) occurs when firm spends more or less on

3、 OH for units produced than it planned Variable OH efficiency Machine hours used for units produced was more/fewer than budgeted,7,Fixed OH volume variance,Occurs when actual budgeted production F produced budget U produced budget 0 actual = budgeted units The variance is not a measure of efficiency

4、.,8,1.3 Common conventions,If given budgeted F OH for year, divide by 12 for monthly Where possible, separate variances for fixed and variable OH. Separate ledger account for F and V? Setting out .(compare with TEXT),9,2. OVERHEADNORMAL AND STANDARD COSTING COMPARED What is the same? What is differe

5、nt?,10,2.1 ITEMS THE SAME,11,2.1 ITEMS THE SAME,Actual OH incurred Always on debit side of OH a/c,12,The budgeted OH rate is always: bud OH (static level) bud (static) activity level,13,OH applied: Always WIP DR OH CR,Variances: Calculate under/over-applied OH as before Under/over applied is the dif

6、ference between actual and applied OH,14,Disposition of variances: Must dispose of under/over applied OH at year end,15,16,2.2 DIFFERENCES?,OH applied: ACCOUNTS same, AMOUNTS different,17,18,Variances: Amount of under/over applied Under/over-applied split further Ledger accounts required for OH vari

7、ances,Disposition of variances: All 8 variance a/cs to be closed Another alternative to transferring to COGS.,19,20,3. OVERHEAD VARIANCES,3.1 VARIANCE REPORT REVIEWED,21,22,This week, OH variances only,Volume because output was not 60,000 units. Cost variances Do not give the full picture. Is varian

8、ce due to: Difference in price Difference in quantity Difference in both,23,What we do with Variable OH same as DM,DL last week: split into price and efficiency Not Fixed OH entire $1,400 is price (no efficiency component) Instead, “new” variance Fixed OH volume,IMPORTANT NOT IN LECTURE NOTES,Confus

9、ing use of term “VOLUME”.,24,3.2 CALCULATION 4 VAR USING TABLES,25,26,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (SQxSP),27,3.2.1 ACTIVITY LEVELS IN THE HEADING,Note: Cost driver is MACHINE HOURS,28,Actual quantity = Actual m/hrs worked = 33,000,Standard quantity = M/hrs we should h

10、ave worked for units produced = 40 mns x 50,000 = 33,333,29,30,Budgeted quantity = M/hrs we should have worked for units budgeted = 40 mns x 60,000 = 40,000,3.2.2 consider the SP,SP = overhead rates OH rate = budgeted OH/budgeted activity,31,For the lecture example:,32,Fixed OH rate,$36,000/40,000 =

11、 90c mach hr,33,Variable OH rate,$60,000/40,000 = $1.50 mach hr,34,3.2.3 COMPLETE FIXED LINE,35,3.2.4 COMPLETE VARIABLE LINE,36,37,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (33,000) (33,333) (SQxSP) $37,400,38,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud

12、 OH Applied at actual at std to WIP (33,000) (33,333) (SQxSP) $37,400 $36,000 $36,000,39,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (33,000) (33,333) (SQxSP) $37,400 $36,000 $36,000 $1,400 U F.SPENDING,40,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Ap

13、plied at actual at std to WIP (33,000) (33,333) (SQxSP) $37,400 $36,000 $36,000 33,333X.90 $30,000 $1,400 U F.SPENDING,41,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (33,000) (33,333) (SQxSP) $37,400 $36,000 $36,000 33,333X.90 $30,000 $1,400 U $6,000 U F.SPEND

14、ING F.VOLUME,42,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (33,000) (33,333) (SQxSP) $59,500,43,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (33,000) (33,333) (SQxSP) $59,500 33,000 33,333 x$1.50 x$1.50 $49,500 $50,000,4

15、4,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (33,000) (33,333) (SQxSP) $59,500 33,000 33,333 x$1.50 x$1.50 $49,500 $50,000 $10,000 U $500 F SPENDING EFFICIENCY,45,3.2.5 CALCULATE OH VARS,Actual Flex Bud Flex Bud OH Applied at actual at std to WIP (33,000) (33

16、,333) (SQxSP) $59,500 33,000 33,333 33,333 x$1.50 x$1.50 x$1.50 $49,500 $50,000 $50,000 $10,000 U $500 F SPENDING EFFICIENCY,46,3.3 FORMULAE = $1.50 X (33,000 33,333) = $500 F,47,= $0.90 X (40,000 33,333) = $6,000 U,48,3.4 JOURNAL ENTRIES - actual overhead incurred: OH 96,900 Misc Credits 96,900,49,

17、- overhead applied: WIP 80,000 OH 80,000,50,Close OH and recognise variances:,Fixed spending DR 1,400 Var spending DR 10,000 Fixed volume DR 6,000 Var effic CR 500 OH CR 16,900,51,How to do this entry:,To close OH account, enter the amount on whichever side of the OH account is smaller Debit Unfav a

18、nd credit Fav variances,4. RESPONSIBILITY/REASON,Last weeks lecture notes.,52,5. CONCLUDING THE PROCESS,Std costing entry for goods finished: FG DR 505,000 WIP CR 505,000 (50,000 x $10.10),53,Std costing entry for goods sold: COGS DR 484,800 FG CR 484,800 (48,000 x $10.10),54,The only difference bet

19、ween these entries under normal costing and standard costing is the UNIT PRODUCT COST.,55,56,PART B: DISPOSITION OF VARIANCES,1. OPTIONS AVAILABLE Rules depend on whether INTERIM OR EOY. INTERIM STATEMENTS transfer to COGS show as an asset (unfavourable variances) or liability (favourable variance)

20、on the balance sheet. we will focus on disposition at end of year only,57,END OF YEAR In the Box calculates 8 variances, therefore 8 variance accounts must be reduced to zero at end of year, either by: expensing them to the current period (to COGS), or allocating them across inventories and COGS (ca

21、pitalised/pro-rating),We will cover only a simple proration example. When MPV is calculated on purchase, proration is more complex. Not covered.,58,59,2. DISPOSITION PRACTICE (AASB102),If immaterial dispose of using easier option. If material, comply with AASB102. What is material?,60,If material: D

22、etermine reason for variance. Consider whether to expense or capitalise, using rules.,61,Rules under AASB102 do not have to be known for the purposes of this unit. For your information only.,62,3. LECTURE EXAMPLE - PRORATION,63,The variances for “In the Box” were: Favourable (all have CR balances) U

23、nfavourable (all have DR balances) MPV (calculated on USAGE) 5,200 MEV 5,000 LEV 3,000 LRV 8,250 Variable overhead efficiency 500 Fixed OH spending 1,400 8,700 Fixed OH volume 6,000 Variable OH spending 10,000 30,650 Total (NET) variances: 30,650 DR - 8,700 CR = 21,950 DR Units in WIP 1,000, FG 7,00

24、0, COGS 48,000,64,The proration is carried out as follows: Add all variances together (the total is $21,950), and then Prorating the total across WIP, FG and COGS, using quantities rather than dollar values if possible:,65,WIP 1,000 1/56 etc 392 FG 7,000 2,744 COGS 48,000 18,814 56,000 21,950,66,While we add variances for proration, must show journal entries for each variance account,67,Journal entry: WIP 392 FG 2,744 COGS 18,814 MPV 5,200 LEV 3,000 Var. OH efficiency 500 MEV 5,000 LRV 8,250 Fixed OH spending 1,400 Fixed OH volume 6,000 Var. OH s