Eigen flashcards FIDM - Eigen flashcards
3 important questions on Eigen flashcards FIDM - Eigen flashcards
Advantages flexible budgets
- Shows revenues and expenses that should have occurred at the actual level of activity
- May be prepared for any activity level in the relevant range
- Reveal variances due to good cost control or lack of cost control
- Improve performance evaluation
- May be prepared for any activity level in the relevant range
- Reveal variances due to good cost control or lack of cost control
- Improve performance evaluation
Pitfalls volume variance
- management may have maintained some extra capacity to meet uncertain demand increases that are important to satisfy customer demands.
- production volume variance focuses only on costs. It does not measure the opportunity cost of unused capacity.
- measuring and rewarding performance using the production volume variance induces managers to build inventories.
- production volume variance focuses only on costs. It does not measure the opportunity cost of unused capacity.
- measuring and rewarding performance using the production volume variance induces managers to build inventories.
Overhead variance analysis formulas:
Spending
- Variable: AVOH - (VOHR x AV)
- Fixed: AFOH - FOH
Efficiency:
- Variable: VOHR x (AV - SV)
- Fixed: no
Volume:
- Variable: no
- Fixed: FOHR x (SV - BV)
- Variable: AVOH - (VOHR x AV)
- Fixed: AFOH - FOH
Efficiency:
- Variable: VOHR x (AV - SV)
- Fixed: no
Volume:
- Variable: no
- Fixed: FOHR x (SV - BV)
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