Budged Planing

CHAPTER 8
FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND
MANAGEMENT CONTROL

8-1 Effective planning of variable overhead costs involves:
    1. Planning to undertake only those variable overhead activities that add value for customers using the product or service, and
  2. Planning to use the drivers of costs in those activities in the most efficient way.


8-2 At the start of an accounting period, a larger percentage of fixed overhead costs are locked-in than is the case with variable overhead costs. When planning fixed overhead costs, a company must choose the appropriate level of capacity or investment that will benefit the company over a long time. This is a strategic decision.

8-3 The key differences are how direct costs are traced to a cost object and how indirect costs
are allocated to a cost object:


      |                           |Actual Costing                     |Standard Costing                                                   |
|Direct costs               |Actual prices                     |Standard prices                                                     |
|                           |× Actual inputs used               |× Standard inputs allowed for actual output                         |
|Indirect costs             |Actual indirect rate               |Standard indirect cost-allocation rate                             |
|                           |× Actual inputs used               |× Standard quantity of cost-allocation base allowed for actual     |
|                           |                                   |output                                                             |

8-4 Steps in developing a budgeted variable-overhead cost rate are:
      1. Choose the period to be used for the budget,
      2. Select the cost-allocation bases to use in allocating variable overhead costs to the output produced,
      3. Identify the variable overhead costs associated with each cost-allocation base, and
      4. Compute the...