MANAGEMENT ACCOUNTING

OVERHEAD
VARIANCES
By: Group 3 MW 10:30-12:00 GR 346

Albiso | Ansong | Canillo | Fabio | Lambo | Quino | Pataytay

 Actual overhead
(VOH + FOH)
- Overhead

--
Spending

Budgeted OH @ actual Variance

FOH + (VOH rate x

actual hours)
Overhead

Efficiency

--
Budgeted OH @ standard Variance

FOH + (VOH rate x

YAW-3

standard hour x AP)

Overhead

-
Volume
Applied overhead Variance
Standard (FOH +

VOH)
2-WAY
Actual overhead
(VOH + FOH) - Controllable

--
Variance
Budgeted OH @
standard
FOH + (VOH rate x AP x

standard hours per unit Volume

-
Variance
Applied overhead
OH rate x AP x

standard hours per

unit
 1-WAY
Actual overhead
(VOH + FOH) - Total

Overhead

-
Variances

Applied
overhead
Disposition of Variances
Variances can be disposed of in one of two ways.

Period expenses - closed to:

Cost of Goods Sold or

directly to Income Summary

Adjustments to Cost of Goods Sold and ending

inventories
For interim If the variance results from a planned fluctuation

within the annual period:

period Variance balance may be carried forward in

statements
the variance account.

It is reported as a balance sheet item on the

interim statement.

If the variance does not result from a planned

fluctuation within the annual period and if it is

material:

Variance must be allocated to the relevant

inventory balances and to Cost of Goods Sold

based on the relative amounts of each.

If the variance is material:

It is allocated to relevant inventory balances

and to Cost of Goods Sold based on the

relative amounts of each.

If not material:

It is closed directly into Cost of Goods Sold or

For year-end
Income Summary.
statements
It depends upon the: Treatment
of Variance
the type of variance (materials, labor,

factory overhead

size of variance

experience with standard cost

cause of variance (e.g. incorrect

standards)

timing of variance (e.g. a variance

caused by seasonal fluctuations)

 Viewed as losses due to inefficiency
At the end of the year,
and closed to Income Summary

variance from standard must Allocated as adjustments to the

be disposed in the accounting recorded cost of Work in Process,

Finished Goods and Cost of Goods

records. The variances may
Sold
be:
Closed to Cost of Goods Sold
 VARIANCES TREATED
AS PERIOD EXPENSES
Closed to Cost of Goods Sold

Cost of Goods Sold xx

Various variances (favorable) xx

Various variances (unfavorable) xx

JOURNAL
Closed to Income Summary ENTRIES
Income Summary xx

Various variances (favorable) xx

Various variances (unfavorable) xx

 VARIANCES ALLOCATED TO COST
OF GOODS SOLD AND ENDING
INVENTORIES
JOURNAL Cost of Goods Sold xx

ENTRIES
Work in process xx

Finished goods xx

Various variances (favorable) xx

Various variances (unfavorable) xx

EXERCISES