Why is the flexible budget variance the same amount as the spending variance for fixed manufacturing overhead?

Why is the flexible budget variance the same amount as the spending variance for fixed manufacturing overhead?

There is no efficiency variance for fixed overhead. Because the overhead is fixed not variable.

What are the steps in developing a budgeted fixed overhead rate ?

What are the steps in developing a budgeted fixed overhead rate ?

1.Choose the period to use for the budget,
2.Select the cost-allocation base to use in allocating fixed overhead costs to output produced,
3.Identify the fixed-overhead costs associated with each cost-allocation base, and
4.Compute the rate per unit of each cost-allocation base used to allocate fixed overhead costs to output produced.

How does standard costing differ from actual costing?

How does standard costing differ from actual costing?

Standard costing assigns predetermined estimated values to each of your materials, labor, overhead. actual costing assigns ever changing actual costs to each component in manufacturing process.

How does the planning of fixed overhead costs differ from the planning of actual costing ?

How does the planning of fixed overhead costs differ from the planning of actual costing ?

At the start of an accounting period, a larger percentage of fixed overhead costs are locked-in than is the case with variable overhead costs. When planning fixed overhead costs, a company must choose the appropriate level of capacity or investment that will benefit the company over a long time. This is a strategic decision.

Describe three reasons for an unfavorable direct manufacturing labor efficiency variance ?

Describe three reasons for an unfavorable direct manufacturing labor efficiency variance ?

Longer time to make each jacket due to poor quality jackets, slower work, unskilled workers, standards set too high due to lack of evaluation in workers and environment.

List three causes of a favorable direct materials price variance?

List three causes of a favorable direct materials price variance?

1. Purchasing officer negotiated more skillfully than was planned in the budget, 
2. Purchasing manager bought in larger lot sizes than budgeted, thus obtaining quantity discounts, 
3. Materials prices decreased unexpectedly due to, say, industry oversupply,

List four reasons for using standard costs.

List four reasons for using standard costs.

(i) cost management,
(ii) pricing decisions,
(iii) budgetary planning and control, and
(iv) financial statement preparation.

Describe the steps in developing a flexible budget?

Describe the steps in developing a flexible budget?

Step 1. Identify actual output, based on budgeted selling price and actual quantity of output.


Step 2. Calculate the flexible budget for revenues based on budgeted selling price and actual quantity of output.


Step 3: Calculate the flexible budget for costs based on budgeted variable cost per output
unit, actual quantity of output, and budgeted fixed costs.

Why might managers find a flexible-budget analysis more informative than a static-budget analysis?

Why might managers find a flexible-budget analysis more informative than a static-budget analysis?

Flexible has more detailed analysis on variance. Better measure of sale price and cost performance comparing actual revenues and costs and costs

Distinguish between a favorable variance and an favorable variance?

Distinguish between a favorable variance and an favorable variance?

A favorable variance (denoted F) is a variance that has the effect of increasing operating income relative to the budgeted amount. An unfavorable variance--denoted U--is a variance that has the effect of decreasing operating income.

What are two possible sources of information a company might use to compute the budgeted amount?

What are two possible sources of information a company might use to compute the budgeted amount?

Two sources of information about budgeted amounts are

(a) Past amounts and
(b) Detailed engineering studies.

What is the relationship between management by exception and variance analysis?

What is the relationship between management by exception and variance analysis?

Management by exception is the practice of concentrating on areas not operating as expected and giving less attention to areas operating as expected. Variance analysis helps managers identify areas not operating as expected. The larger the variance, the more likely an area is not operating as expected.

What are the main costs and limitations of implementing ABC systems?

What are the main costs and limitations of implementing ABC systems?

The main costs and limitations of ABC are the measurements necessary to implement the systems. Even basic ABC systems require many calculations to determine costs of products and services. Activity-cost rates often need to be updated regularly. Very detailed ABC systems are costly to operate and difficult to understand. Sometimes the allocations necessary to calculate activity costs often result in activity-cost pools and quantities of cost-allocation bases being measured with error. When measurement errors are large, activity-cost information can be misleading.

Describe four signs that help indicate when ABC systems are likely to provide the most benefits?

Describe four signs that help indicate when ABC systems are likely to provide the most benefits?

1. Significant amount of Indirect costs are allocated using one or two cost pools.
2. All or most indirect cost identified as output level unit costs.
3. Products make diverse demands on resources because of differences in volume process steps, batch size.
4. Operations staff has substantial disagreements with reported costs of manufacturing and marketing products and services.

Describe four decisions for which ABC information is useful ?

Describe four decisions for which ABC information is useful ?

1. Pricing and product mix decisions,
2. Cost reduction and process improvement decisions,
3. Product design decisions, and
4. Decisions for planning and managing activities.

Why is it important to classify costs into a cost hierarchy?

Why is it important to classify costs into a cost hierarchy?

Cost pools will be homogenous/ to get closer to true costs, peanut butter costing.

What is an activity based approach to designing a costing system?

What is an activity based approach to designing a costing system?

An activity-based approach refines a costing system by focusing on individual activities as the fundamental cost objects. It uses the cost of these activities as the basis for assigning costs to other cost objects such as products or services.

Define costing refinement? Describe three guidelines for costing refinement ?

Define costing refinement? Describe three guidelines for costing refinement ?

The use of simple costing system that reduces the use of broad averages for assigning the cost of resources to cost objects.

Three guidelines for refinement are

1. Direct cost tracing- Classify as many of the total costs as direct costs as is economically feasible.

2. Indirect cost tracing-Expand the number of indirect cost pools until each of these pools is more homogenous.

3. Cost allocation base-Use the cause-and-effect criterion, when possible, to identify the cost-allocation base for each indirect-cost pool.

Why should managers worry about product overcosting or undercosting ?

Why should managers worry about product overcosting or undercosting ?

-Overcosting may result in competitors entering a market and taking market share for products that a company erroneously believes are low-margin or even unprofitable.
-Undercosting may result in companies selling products on which they are in fact losing money, when they erroneously believe them to be profitable.

What is broad averaging and what consequences can it have on costs.

What is broad averaging and what consequences can it have on costs.

Simple costing approach to allocate overhead costs in an easy inexpensive way. Product diversity can lead to inaccurate costs as individual product/services uses these resources in non uniform ways.