Chapter11 Flexible Budgets and Overhead Analysis.doc

Chapter11 Flexible Budgets and Overhead Analysis
Flexible Budgets and Overhead Analysis
Chapter11
Static Budgets and Performance Reports
Static budgets are prepared for a single, planned level of activity3>.
Performance evaluation is difficult when actual activity differs from the planned level of activity.
Hmm! Comparing static budgets with actual costs is paring apples and oranges.
Let’s look at CheeseCo.
Static Budgets and Performance Reports
Static
Actual
Budget
Results
Variances
Machine hours
10,000


8,000


Variable costs

Ind
irect labor
40,000
$

34,000
$

Indirect materials
30,000


25,500


Power
5,000


3,800


Fixed costs
Depreciation
12,000


12,000


Insurance
2,000


2,050


Total overhead costs
89,000
$

77,350
$

CheeseCo
Static Budgets and Performance Reports
Static
Actual
Budget
Results
Variances
Machine hours
10,000


8,000


2,000
U
Variable costs

Ind
irect labor
40,000
$

34,000
$

$6,000
F
Indirect materials
30,000


25,500


4,500
F
Power
5,000


3,800


1,200
F
Fixed costs
Depreciation
12,000


12,000


0
Insurance
2,000


2,050


50

U
Total overhead costs
89,000
$

77,350
$

$11,650
F
U = Unfavorable variance CheeseCo was unable to achieve the budgeted level of activity.
CheeseCo
Static Budgets and Performance Reports
Static
Actual
Budget
Results
Variances
Machine hours
10,000


8,000


2,000
U
Variable costs

Ind
irect labor
40,000
$

34,000
$

$6,000
F
Indirect materials
30,000


25,500


4,500
F
Power
5,000


3,800


1,200
F
Fixed costs
Depreciation
12,000


12,000


0
Insurance
2,000


2,050


50

U
Total overhead costs
89,000
$

77,350
$

$11,650