2Learning ObjectivesPrepare a flexible budget and use it for performance reporting.Calculate the variable overhead variances and explain their meaning.Calculate the fixed overhead variances and explain their meaning.Prepare an activity-based flexible budget.
4How to prepare a performance report based on a static budget (using budgeted production). 10-1For Quarter 2Relationships from the Master Budget Actual DataBudgeted production units 1,590Production units1,800Materials:Materials cost:$ 6,570.001 plain $3.005 ounces of $0.20Labor:Labor cost:$ 2,250.000.12 $10.00
5How to prepare a performance report based on a static budget (using budgeted production). 10-1For Quarter 2Relationships from the Master Budget Actual DataVariable overheadMaintenanceMaintenance:$Power $1.25Power$Fixed overheadGrounds keeping: $1,105 per qtr.Grounds keeping$ 1,055.00Depreciation: $540 per qtr.Depreciation$REQUIRED: Prepare a performance report using a budget based on expected production.Calculation: Appears on next slide.
6How to prepare a performance report based on a static budget (using budgeted production). 10-1ActualBudgetedVarianceUnits1,5901,800DM cost$ 6,360.00$ 6,570.00DL cost1,908.002,250.00Overhead:Variable:Maintenance715.50802.50Power238.50255.00Fixed:Grounds Keeping1,105.001,055.00Depreciation540.00Total$ 10,867.00$ 11,472.50
7Define the two types of flexible budgets. Before-the-factAfter-the-fact
8How to prepare a flexible production budget. 10-2Levels of activity 1,100 1,300 1,500Materials:1 plain $3.005 ounces of $0.20Labor:0.12 $10.00Variable overheadMaintenancePower $1.25Fixed overheadGrounds keeping: $1,105 per qtr.Depreciation: $540 per qtr.Required: Prepare a budget for three levels of output: 1,100, 1,300, 1,500 unitsCalculation: Appears on the following slide
9How to prepare a flexible production budget. 10-2Variable CostRange of Productionper UnitunitsUnitsDM costDL costOverhead:Variable:Mainten.PowerTot var costRemainder on following slide
10How to prepare a flexible production budget. 10-2Fixed:Grds KpDeprecTotal fix costTotal prod cost
11How to prepare a performance report using a flexible budget. 10-3Budgeted costs for the actual level of activity are calculated using the rates from Cornerstone 10-2 and the activity from Cornerstone 10-1, actual costs come from Cornerstone 10-1.REQUIRED: Prepare a performance report using budgeted costs for the and the actual level of activity.Calculations: Appears on the following slide.
12How to prepare a performance report using a flexible budget. 10-3ActualBudgetedVarianceUnits1,800DM cost$ 6,570.00$ ,200DL cost2,250.002,160.00Overhead:Variable:Maintenance802.50810.00Power255.00270.00Fixed:Grounds Keeping1,105.001,055.00Depreciation540.00Total$ 11,522.50$ 12,035.00
13How to calculate the total variable overhead variance. 10-4Standard variable overhead rate (SVOR) $5.00 DLHActual variable overhead costs 200 hrs.$4.70 (AVOR)Standard rate allowed per unit 0.12 hrActual production 1,600 unitsREQUIRED: Calculate the total variable overhead varianceCalculation:
14How to calculate the variable overhead variances: columnar and formula approaches. 10-5Standard variable overhead rate (SVOR) $5.00 DLHActual variable overhead rate (AVOR) $4.70Actual hours worked (AH) 200 hrsNumber of t-shirts produced 1,600 unitsHours allowed for production (SH) 192 hrsREQUIRED: Calculate the variable overhead spending and efficiency variancesCalculation: Columnar appears on next slide.VOH Spending VarianceVOH Efficiency Variance
15How to calculate the total variable overhead variance. 10-5
16How to prepare a performance report for the variable overhead variances. 10-6Standard variable overhead rate (SVOR) $5.00 DLHActual costs:Maintenance $715Power $225Actual hours worked (AH) hrsNumber of t-shirts produced 1,600 unitsVariable overhead:Maintenance 0.12 $3.75Power 0.12 $1.25REQUIRED: Prepare a performance report that shows the variances on an item-by-item basis.Calculation: Appears on the following slide.
17How to prepare a performance report for the variable overhead variances. 10-6Budget forCostActualSpendingStandardEfficiencyFormulaCostsHoursVarianceMainten.PowerTotal
19How to calculate the total fixed overhead variance. 10-7Standard fixed overhead rate (SFOR) $10 DLHActual fixed overhead costs $1,780Standard hours allowed per unit 0.12Actual production 1,400 unitsREQUIRED: Calculate the total fixed overhead varianceCalculation:
20How to calculate the fixed overhead variances: columnar and formula approaches. 10-8Information from Cornerstone 10-6Standard fixed overhead rate (SFOR) $10.00 DLHBudgeted fixed overhead (BFOH) $1,900Number of t-shirts produced 1,400 unitsHours allowed for production (SH) 168 hrsREQUIRED: Calculate the fixed overhead spending and volume variancesCalculation: Columnar appears on next slide.FOH Spending VarianceFOH Volume Variance
21How to calculate the total fixed overhead variance. 10-8
23How to prepare a static budget for an activity. 10-9Demand for purchase orders is based on materials requirements: 18,000 purchase orders.Resources needed:6 purchasing agents, capable of processing 3,000 purchasing orders per year; salary $45,000.Supplies, projected to cost $1.05 per purchase orderDesks and computers, depreciation $6,000Office space, rent, and utilities $6,500REQUIRED: Prepare a budget for the purchasing activityCalculation: Purchasing budget:Salaries Deprec. Supplies Occup. Total
24How to prepare an activity flexible budget. 10-10For simplicity the full set of information is not listed, but the individual activities, drivers, their cost, formulas, and the output levels are the inputs needed to prepare the budget. To illustrate, the maintenance activity would require the following information for its role in the budget:Activity: MaintenanceDriver: Machine hoursFixed activity costs: $20,000Variable activity rate: $5.50 per machine hourREQUIRED: Prepare an activity-based flexible budgetCalculation: Follows on the next slide, Driver = DLH
25How to prepare an activity flexible budget. 10-10Driver: DLHFormulaLevel of ActivityFixedVariable12,00022,000DMDLSubtotalDriver: MHMainten.MachiningRemainder follows on the next slide
26How to prepare an activity flexible budget. 10-10Driver: # of SetupsFixedVariable2530SetupsInspect.SubtotalDriver: # of OrdersPurchas.
27How to prepare an activity-based performance report. 10-11Actual activity level is the first one for each activity listed in CornerstoneActual cost:Direct materials $103,000Direct labor 83,000Maintenance 57,000Machining 27,000Inspections 128,000Setups 44,000Purchases 230,000REQUIRED: Prepare an activity-based performance reportCalculation: Appears on next slide.
28How to prepare an activity-based performance report. 10-11Act. CostBud. CostBudget Var.DM$103,000$100,000DL83,00080,000Maint.57,00064,000Machin.27,00031,000Inspec.128,000132,500Setups44,00045,000Purch.230,000226,000Total$672,000$678,500