Overhead variances, Cost Accounting

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.

Posted Date: 2/7/2013 6:52:34 AM | Location : United States







Related Discussions:- Overhead variances, Assignment Help, Ask Question on Overhead variances, Get Answer, Expert's Help, Overhead variances Discussions

Write discussion on Overhead variances
Your posts are moderated
Related Questions
Reasons for Cost Allocation 1. To provide comparison along with externally provided services:  It helps in assessing where to continue the contact or service outsiders. 2.

A family in Cambridge received their Christmas presents from friends in Paris this week – 50 days after their parcel was posted. French posties sent it to Cambodia, and the near-20

Illustration of Overhead Variance Analysis Again for intentions of our demonstrations in overhead variance analysis, we will suppose the given basic data for company in the pr

Special order pricing - Shorewood Shoes Company makes and sells a variety of leather shoes for children. For its current mix of different models and seizes, the average selling pri

Cost Book-Keeping In cost account accounts, extensive employ is made of control accounts that are based in the similar principles as those utilized in financial accounts.  Two

Accrued income is an amount earned although not in reality received during the accounting period or till the date of preparation of last accounts for the period concerned. The firs

Early in 2014, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2014 and

Determine Cost per Unit By Using Marginal and Absorption Costing The given information was extracted from the book of a company for the year ended on date 31/12/2001. Outpu

Developing and Insight into Labour and Material Variance The calculation of labour and material variances is not sufficient; we require knowing how the variance could have typ

A corporation acquired a truck on July 1, 2012, at a cost of $162,000. The truck has a six-year useful life and an estimated salvage value of $18,000. The straight-line method of d