ACCTMIS 6000 Discussion—Fixed OH Cost Variances

Flashcards covering key concepts related to fixed overhead cost variances as discussed in the lecture.

Fixed Manufacturing Overhead (FMOH)

Costs that remain constant in total, regardless of production volume within a relevant range, and are allocated to products using a predetermined rate.

Variance Analysis

A management accounting technique to identify and analyze financial differences between actual and budgeted or standard amounts, aiding in performance assessment and control.

Underallocated Fixed Overhead

Occurs when actual fixed overhead costs exceed the fixed overhead applied to products, typically resulting in a debit balance in the overhead control account.

Overallocated Fixed Overhead

Occurs when fixed overhead applied to products exceeds actual fixed overhead costs, typically resulting in a credit balance in the overhead control account.

Budgeted Output (Denominator Level)

The planned production or activity level used as the denominator to calculate the predetermined fixed manufacturing overhead rate.

Actual Production

The real quantity of goods or services produced in a period, used for determining the actual activity level for overhead application.

Variable Manufacturing Overhead (VMOH)

Costs that change in total directly with production volume but remain constant per unit, allocated based on an activity measure.

Fixed Overhead Spending Variance

The difference between actual fixed manufacturing overhead costs incurred and the total budgeted fixed overhead, showing management effectiveness relative to the static budget. =\text{Actual Fixed Overhead Incurred}-\text{Budgeted Fixed Overhead}

Production-Volume Variance

A fixed overhead variance reflecting the cost of unused or overused capacity when actual production differs from budgeted volume. It's the difference between budgeted and applied fixed overhead. =\text{Budgeted Fixed Overhead}-\text{Applied Fixed Overhead (based on Actual Activity)}

Direct Manufacturing Labor-Hours (DMLH)

Total hours worked directly by employees in manufacturing, commonly used as an allocation base for both fixed and variable overhead costs.

Standard Costing

An accounting system using predetermined rates for direct and indirect costs, acting as a benchmark for performance measurement, planning, control, and product costing.

Flexible Budget Fixed Overhead

The budgeted total fixed manufacturing overhead for a period, which remains constant regardless of actual activity within the relevant range; it's always the static budget amount for fixed costs.

Applied Fixed Manufacturing Overhead

Fixed manufacturing overhead costs debited to work-in-process inventory, calculated by multiplying the predetermined rate by the actual allocation base used. =\text{Predetermined Fixed Overhead Rate}\times\text{Actual Quantity of Allocation Base}

Variable Overhead Efficiency Variance

Measures the variable overhead cost impact from the difference between the actual and standard quantity of allocation base allowed for actual output, multiplied by the standard variable overhead rate. =(\text{Actual Quantity of Allocation Base}-\text{Standard Quantity of Allocation Base Allowed for Actual Output})\times\text{Standard Variable Overhead Rate}

Predetermined Fixed Overhead Rate

The rate calculated at the start of a period to apply fixed manufacturing overhead costs to products. =\frac{\text{Budgeted Total Fixed Manufacturing Overhead}}{\text{Budgeted Total Quantity of Allocation Base (Denominator Level)}}

Predetermined Variable Overhead Rate

The rate calculated at the start of a period to apply variable manufacturing overhead costs to products. =\frac{\text{Budgeted Total Variable Manufacturing Overhead}}{\text{Budgeted Total Quantity of Allocation Base}}

Total Fixed Manufacturing Overhead Variance

The overall difference between actual fixed manufacturing overhead incurred and fixed overhead applied to production, being the sum of the Fixed Overhead Spending Variance and the Production-Volume Variance. =\text{Actual Fixed Overhead Incurred}-\text{Applied Fixed Overhead}

Variable Overhead Spending Variance

Measures the difference between actual variable overhead incurred and the flexible-budget variable overhead based on the actual allocation base used, indicating control effectiveness. =\text{Actual Variable Overhead Incurred}-(\text{Actual Quantity of Allocation Base}\times\text{Standard Variable Overhead Rate})

Total Variable Manufacturing Overhead Variance

The overall difference between actual variable overhead incurred and the flexible-budget variable overhead based on standard input allowed for actual output, comprising the Spending and Efficiency Variances. =\text{Actual Variable Overhead Incurred}-(\text{Standard Quantity of Allocation Base Allowed for Actual Output}\times\text{Standard Variable Overhead Rate})

Standard Quantity of Allocation Base Allowed for Actual Output

The total amount of an allocation base that should have been used to produce the actual output, based on predetermined standards. =\text{Actual Output}\times\text{Standard Quantity of Allocation Base per Unit}