Bài giảng môn Kế toán, kiểm toán - Chapter thirteen: overhead and marketing variances

Overhead and Marketing VariancesChapter ThirteenCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinConnection to Other Chapters Chapter 13 extends the price and quantity variances to overhead and marketing. Chapter 12 began the price and quantity variance analysis with direct labor and direct materials. Chapter 9 described how absorption costing applies overhead to jobs. Chapter 4 built the foundation on how internal accounting is used for decision control.13-2Overhead Volume MeasuresBV: Budgeted volume (also known as denominator volume)Estimated at the beginning of the year and used for calculating the overhead rateSV: Standard volume (also known as earned or allowed volume)(Output units completed)  (Standard input hours per output unit)Volume used to apply overhead to work-in-process inventoryAV: Actual volumeActual hours or other input resource used during period13-3Budget Volume EstimatesEstimated budget volume influences overhead rate.Increasing budgeted volume (denominator) while holding total budgeted dollars constant (numerator) decreases the overhead rate.Expected volume to set budgetAdjust expectation based on number of units forecast for next year.Rises and falls with business cycleNormal volume to set budgetForecast of long-run average annual productionDoes not change over business cycle13-4Flexible Overhead BudgetFlexible overhead budget is the formula for budget forecast. Flexible overhead budget = FOH + (VOH  V) = $1,350,000 + ($14  V)Estimate budgeted overhead (BOH) dollars using a specific budgeted volume number (BV) and the flexible overhead budget formula. BOH = FOH + (VOH  BV) = $ 1,350,000 + ($14  67,500 hours) = $ 2,295,00013-5Overhead Rate Overhead rate is the total budgeted overhead dollars for the year divided by the budgeted volume for the year. OHR = (BOH  BV) = (FOH  BV) + VOHThe overhead rate consists of the estimated:fixed overhead $ per input hour (FOH  BV), andvariable overhead $ per input hour (VOH)13-6Overhead Absorbed Overhead is absorbed (also known as applied) by the product when work is done in the factory. The accounting system transfers costs from the overhead account to the work-in-process account (Figure 9-1). For most firms, overhead is absorbed using the standard volume.Overhead absorbed = Overhead rate  Standard volume = OHR  SVStandard Volume = Units of output  Standard input per output See Table 13-3: SV = 67,400 machine hours for 96,000 blocks Overhead absorbed = $34  67,400 machine hours13-7Total Overhead VarianceOverhead variances occur when the actual overhead incurred does not equal the overhead absorbed (see Figure 9-1 and the T-accounts).Actual overhead Overhead absorbedcost incurred (applied to product) AOH (OHR  SV) |_________________________________________| AOH - (OHR  SV) Total overhead variance Underabsorbed, if actual > absorbed Overabsorbed, if actual SV Favorable (F) when AV SV Favorable (F) when BV BV, the volume variance is favorable. Rewarding favorable volume variances encourages inventory building.13-11Overhead Spending VarianceActual overhead at Flexible budget atactual volume actual volume AOH [FOH + (VOH AV)] |______________________________________| Overhead Spending Variance AOH - [FOH + (VOH AV)] Unfavorable (U) when AOH > [FOH + (VOH AV)] Favorable (F) when AOH < [FOH + (VOH AV)] Cause: unexpected changes in prices of variable and fixed overhead items, and changes in production technology13-12Inaccurate Flexible Budget Usefulness of overhead variances in performance measurement depends on accuracy of flexible budget in predicting cost-volume relation. Flexible budget assumes a linear formula over relevant range. But as production volume increases to levels near or above plant capacity, congestion occurs and:actual costs increase above flexible budget.unfavorable spending variance is reported. A more accurate flexible budget formula would forecast congestion costs, and allow variable costs to increase as volume increases.13-13Sales Price and Quantity VariancesSymbols: Q = Quantity; P = Price; a = actual; s = standard Total Flexible budget Totalactual based on budgeted sales actual quantity sold sales(Qa  Pa) (Qa  Ps) (Qs  Ps) |____________________| |____________________| [Qa  (Pa - Ps)] [(Qa - Qs)  Ps] Price variance Quantity variance |_____________________________________________| [( Qa  Pa)  (Qs  Ps)] Total sales variance in sales dollarsPrice variances measure sales manager’s pricing policy.Quantity variances depend on salespersons’ efforts and customer orders.13-14Marketing Contribution Margin VariancesQ = Quantity; CM = Contribution margin per unit; a = actual; s = standard [Note: Cma is (actual price – budgeted variable costs).] Total Flexible budget Total actual based on budgeted sales actual quantity sold sales(Qa  Cma) (Qa  CMs) (Qs  CMs) |___________________| |____________________| [Qa  (CMa - CMs)] [(Qa - Qs)  CMs] CM price variance CM quantity variance |_____________________________________________| [(Qa  CMa)  (Qs  CMs)] Total sales variance in profit dollarsPrice variances measure sales manager’s pricing and purchasing policy.Quantity variances depend on salespersons’ efforts and customer orders.13-15Marketing Sales and Mix Variances Actual Flex. budget at Flex. budget at Standardrevenue actual mix % standard mix % revenue$23,241 10,600  57.55%  $3.80 10,600  60%  $3.80 6,000 $3.80 24,210 10,600  42.45%  $5.40 10,600  40%  $5.40 4,000 $5.40 $47,451 $47,480 $47,064 $44,400 |________________| |_______________| |__________________| Price variance Mix variance Sales variance $ 29 U $ 416 F $ 2,664 F |______________________________________| Quantity variance $ 3,080 F |_________________________________________________________| Total sales variance $ 3,051 F13-16