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Overhead Variances

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The weekly flexible budget for indirect costs is $1600 plus $5 per standard hour ... Indirect costs are absorbed on the basis of standard hours of direct labor. ... – PowerPoint PPT presentation

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Title: Overhead Variances


1
Overhead Variances
  • Swan is a specialty chemical produced in batches.
    Normal denominator volume is 100 batches per
    week. The weekly flexible budget for indirect
    costs is 1600 plus 5 per standard hour of
    direct labor. Indirect costs are absorbed on the
    basis of standard hours of direct labor.

2
Overhead Variances
  • Data for the week just ended are
  • (1) Production amounted to 103 batches
  • (2) 315 hours of direct labor were used,
    costing 2,472.
  • (3) Standards allow 3 hours of DL per batch
  • (4) Actual variable overhead for the week was
    1,550
  • (5) Actual fixed overhead for the week was
    3,700

3
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4
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5
Relevant CostsAdding and Dropping Products
  • What is the contribution lost?
  • What is the change in Fixed costs?
  • Costs that will simply be assigned to other
    activities (i.e. unavoidable costs) should NOT be
    assumed to go away (obvious but not always
    self-evident during an exam).

6
C-V-P Analysis Breakeven
  • An object can be sold for 10. The variable cost
    of manufacturing is 3 and that of selling and
    distribution is 1. Fixed costs are 120,000
    p.a. Tax rates are 40.
  • Compute BEV. 120,000/10-3-1 20000
  • Compute target sales for profit of 150,000.
  • 150,000/(1-.4)6 20000 61,667

7
C-V-P Analysis Breakeven
  • Compute BEV if tax rates change to 50.
  • BEV is independent of taxes -- why??
  • Compute target sales for profit of 150,000 when
    tax rate is 50.
  • 150000/(1-.5)6 20000 70,000
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