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
(No Transcript)
4
(No Transcript)
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