Overhead variances, Cost Accounting

Assignment Help:

Overhead Variances

This explains how the variable overhead total variance and the fixed overhead total variances calculated. You can recall the overheads refer to production costs such cannot be categorized as direct because they cannot be directly traced to an individual unit of production. It is essential to recall that overheads are absorbed into costs via means of Predetermined Overhead Absorption Rates or OAR.  The overhead absorption rate is predetermined like given as:

OAR = Budgeted overhead costs for the period/ Budgeted activity level

The activity level so budgeted could be expressed in units, weight, sales etc: however the most useful concept of the activity level is the standard hour. 

Hence the total overhead absorbed = OAR x Standard hours of production.

Whereas the standard costing system employs Total absorption costing principles as where both variable and fixed overheads are absorbed into production costs, the total overheads absorbed can be sub-divided into Fixed Overhead Absorption Rates as FOAR and Variable Overhead Absorption Rates as VOAR.

Hence,

Fixed Overhead Absorbed      = FOAR x Standard hours of production

Variable Overhead Absorbed  = VOAR x Standard hours of production.

Total Overheads Absorbed     = (FOAR + VOAR) x Standard hours of production

However where the standard marginal costing principles are utilized with the standard costing system, merely variable overheads are absorbed into production costs and hence only variances connecting to variable overheads arise. It makes overhead variance analysis a bit easier in this case.


Related Discussions:- Overhead variances

Single limiting factor, Single Limiting Factor Where a single limiting...

Single Limiting Factor Where a single limiting factor exists for the decision making sequence may be implemented given as:- - Compute the contribution per unit of limiting

Single entry and incompelet records, draw up statements of affairs to show ...

draw up statements of affairs to show the profit or loss for the year

Calculate the fixed costs to the two products, Herrestad Company does produ...

Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total)

Features and procedures of job costing, Features and Procedures of Job cost...

Features and Procedures of Job costing Features of Job costing Product is against the customer's order and not on job stocks. Every job has its own characteristics and ne

CVP Break even analysis, Bottoms Up company produces high quality sports eq...

Bottoms Up company produces high quality sports equipment. the companie''s racket division manufactures three tennis rackets- the Standard, Deluxe and the Pro that are widely used

Calculate the pay back period after tax cash flows, An investment alternati...

An investment alternative in a project requires a capital cost of $102 millions completed at time zero. The investment will produce a stream of revenue of $50 millions per year ove

Pv ratio, Do I use the contribution per unit and the total sales for the de...

Do I use the contribution per unit and the total sales for the department in order to calculate the p/v ratio for a department

Why is the statement of cash flows useful, Explain:- Q Why is the statem...

Explain:- Q Why is the statement of cash flows useful? Q. How is it possible for a company to suffer a net loss for a given year, yet produce a positive net cash flow from opera

What is the free cash flow for master designs, Master Designs Company has c...

Master Designs Company has cash flows for operating activities of $350,000. Cash flows used for investments in property, plant, and equipment totaled $65,000, of which 70% of this

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd