THE BATTLE OF THE GREAT MINDS

Presented by: SPCQUIBOYEN and JRCRISTOBAL

BM220 – Management Accounting and Control
13 October 2018
 BATTLE MECHANICS:
1. Before the start of round 1, each will have to introduce yourselves
using 1 personal attribute in order to win the battle.
2. The battle is composed of 2 rounds (Budget & Standard Round)
with series of questions relative to the specific topics to be discussed.
3. Correct answer for each question/requirement will earn 2 points,
and zero if otherwise incorrect.
4. At the end of the each round, the top 2 will face off for a debate.
Winner will get 15 points (money question).
5. Participant with highest earned points will win the BATTLE and
become the CHAMPION among the GREAT MINDS.
 ROUND 1
Functional and
Activity Based
Budgeting
Level 1 – Multiple Choice
Level 2 – Name that Budget
Level 3 – Face Off
 SCOPE OF THE BATTLE
Difference The Advantages
Definition Functions
between Purposes and
of of
Planning of the Limitations
Budgeting and Control
Budgeting
Budget of Budgets

Management Budget
Budgeting Process of
Types of The Budget Cycle of a
Terminologies Preparing the
Budgets Master Period Manufactu
Defined
Budget ring Firm

Comprehe Fixed and

Steps in
nsive Flexible
Developing Flexible
Budget Budget
a Master Budgeting
Illustrated Variance
Budget
Compared
QUESTION 1.
Which of the following is/are the
attributes/features of budgeting?

A. Process
B. Includes number of activities performed
C. Uses estimates
D. All of the above
QUESTION 1.
Which of the following is/are the
attributes/features of budgeting?

A. Process
B. Includes number of activities performed
C. Uses estimates
D. All of the above
 WHAT IS BUDGETING?
Budgeting is a process. This means budgeting is a number of activities
performed in order to prepare a budget. A budget is a quantitative plan used as
a tool for deciding which activities will be chosen for a future time period.

In a business, the budgeting for operations will include the following:

preparing preparing
summarizing
estimates of estimates of
these
preparing the future day-
future cash estimates into
estimates of collections
to-day
an income
future sales activities of
and statement and
the
disbursements balance sheet
organization
QUESTION 2.
Planning cycle includes the following,
except?

A. Setting short term objectives

B. Creating long term goals
C. Comparison of actual with planned
D. Feedback
QUESTION 2.
Planning cycle includes the following,
except?

A. Setting short term objectives

B. Creating long term goals
C. Comparison of actual with planned
D. Feedback
Planning Cycle
Strategic Plan
Difference Between
Long-Term
Objectives
Planning and Control
Short-Term
Objectives

Short-Term
Plan

Budgets

Feedback
Planning Cycle Control Cycle
Strategic Plan
Monitoring of
Actual Activity
Long-Term
Objectives

Short-Term
Objectives

Short-Term
Plan Comparison of
Actual with
Planned
Budgets

Feedback Investigation

Corrective Action
QUESTION 3.
The following are functions of budgeting,
which is NOT?

A. Motivating managers
B. Coordinating activities
C. Evaluating performance
D. None of the above
QUESTION 3.
The following are functions of budgeting,
which is NOT?

A. Motivating managers
B. Coordinating activities
C. Evaluating performance
D. None of the above
 Functions of Budgeting

planning annual Motivating

operations managers

coordinating controlling
activities activities

Communicating Evaluating
plans performance
QUESTION 4.
Which of the following is/are advantages of
budgets?

A. helps plan for the future

B. benchmarks for evaluating performance
C. uses approximations and judgment
D. All of the above
E. A and B only
QUESTION 4.
Which of the following is/are advantages of
budgets?

A. helps plan for the future

B. benchmarks for evaluating performance
C. uses approximations and judgment
D. All of the above
E. A and B only
Advantages and Limitations of Budgets
helps plan for the future

means of allocating resources

coordinate the activities of the organization

means of controlling income and expenditure

benchmarks for evaluating performance

can uncover potential bottlenecks

QUESTION 5.
Which of the following is/are disadvantages
of budgets?

A. depends on the cooperation and participation

B. budgeting process takes time
C. may result in attempts to buck the system
D. All of the above
E. B and C only
QUESTION 5.
Which of the following is/are disadvantages
of budgets?

A. depends on the cooperation and participation

B. budgeting process takes time
C. may result in attempts to buck the system
D. All of the above
E. B and C only
Advantages and Limitations of Budgets

uses approximations and judgment

depends on the cooperation and participation

cannot be a substitute for management

budgeting process takes time

may result in attempts to buck the system

QUESTION 6.
The following are operational budget,
except?

A. Cash Budget
B. Profit Budget
C. Revenue Budget
D. All of the above
E. B and C only
QUESTION 6.
The following are operational budget,
except?

A. Cash Budget
B. Profit Budget
C. Revenue Budget
D. All of the above
E. B and C only
Types of Budget
1. Expense budget

Operating
2. Revenue Budget
Budget
3. Profit Budget

1. Cash Budget

Financial
2. Capital Expenditure Budget
Budget
3. Balance Sheet Budget
QUESTION 7.
What describes the objectives and
procedures involved in the budgeting
process and will provide a useful
reference source?

A. The Master Budget

B. The Budget Manual
C. Operating Manual
D. None of the above
QUESTION 7.
What describes the objectives and
procedures involved in the budgeting
process and will provide a useful
reference source?

A. The Master Budget

B. The Budget Manual
C. Operating Manual
D. None of the above
 Budget Committee

• high-level executives tasked to ensure that budgets are

realistically established and that they are coordinated
satisfactorily

Accounting Staff
• assist managers in the preparation of their budgets

Budget Manual
• describe the objectives and procedures involved in the
budgeting process and will provide a useful reference
source

the comprehensive financial plan

for the organization as a whole
QUESTION 8.
Which of the following is/are TRUE about
management process of preparing a master
budget?

A. It starts with communicating details of budget

policy and guidelines
B. The preparation of production budget comes after
sales budget
C. Process also includes coordination and review of
budgets
D. All of the above
QUESTION 8.
Which of the following is/are TRUE about
management process of preparing a master
budget?

A. It starts with communicating details of budget

policy and guidelines
B. The preparation of production budget comes after
sales budget
C. Process also includes coordination and review of
budgets
D. All of the above
The Management Process of
Preparing the Master Budget
• communicating details of budget policy and
guidelines

• determining the factor that restricts output

• preparation of the sales budget

• initial preparation of various budgets

• negotiation of budgets with superiors

• coordination and review of budgets

• final acceptance of budgets

• ongoing review of budgets

 Steps in Developing a Master Budget
Sales Budget

Production Budget

Direct Materials Direct Labor Overhead

Purchases Budget Budget Budget

The Master
Cash Budget
Budget
 Sales Budget

Production Budget

Direct Materials Direct Labor Overhead

Purchases Budget Budget Budget

Ending FG (Unit
Inventory Budget cost)

Cash The Master

Budget Budget
 Sales Budget

Production Budget

Direct Materials Direct Labor Overhead

Purchases Budget Budget Budget

Ending FG
Inventory Budget Selling and
Administrative
Cost of Goods Expenses
Sold Budget Budget

Budgeted IS
Cash The Master
Budget Budget
Preparing the Operating Budget
Sales budget
Production budget
Direct materials purchases budget
Direct labor budget
Overhead budget
Selling and administrative expenses
budget
Ending finished goods inventory budget
Cost of goods sold budget
 Schedule 1
Scarlet and Jessa, Incorporated
Sales Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Units 1,000 1,200 1,500 2,000 5,700
Unit selling price x P10 x P10 x P10 x P10 x P10
Budgeted sales P10,000 P12,000 P15,000 P20,000 P57,000
 Schedule 1
Scarlet and Jessa, Incorporated
Sales Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Units 1,000 1,200 1,500 2,000 5,700
Unit selling price x P10 x P10 x P10 x P10 x P10
Budgeted sales P10,000 P12,000 P15,000 P20,000 P57,000
 Schedule 2
Scarlet and Jessa, Incorporated
Production Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Sales (Schedule 1) 1,000 1,200 1,500 2,000 5,700
Desired ending
inventory 240 300 400 200 200
Total needs 1,240 1,500 1,900 2,200 5,900
Less: Beginning
inventory -180 -240 -300 -400 -180
Units to be
produced 1,060 1,260 1,600 1,800 5,720
 Schedule 2
Scarlet and Jessa, Incorporated
Production Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Sales (Schedule 1) 1,000 1,200 1,500 2,000 5,700
Desired ending
inventory 240 300 400 200 200
Total needs 1,240 1,500 1,900 2,200 5,900
Less: Beginning
inventory -180 -240 -300 -400 -180
Units to be
produced 1,060 1,260 1,600 1,800 5,720
 Computing Units to be Produced

Units to be produced = Expected unit sales +

Units in ending
inventory – Units in
beginning inventory
 Schedule 3
Scarlet and Jessa, Incorporated
Direct Materials Purchases Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Units to be produced
(Schedule 2) 1,060 1,260 1,600 1,800 5,720
Direct materials
per unit x 1 x 1 x 1 x 1 x 1
Production needs 1,060 1,260 1,600 1,800 5,720
Desired ending
inventory 126 160 180 106 106
Total needs 1,186 1,420 1,780 1,906 5,826
 Quarter
1 2 3 4 Year
Total needs 1,186 1,420 1,780 1,906 5,826
Less: beginning
inventory -58 -126 -160 -180 -58
Direct materials to
be purchased 1,128 1,294 1,620 1,726 5,768
Cost per pound x P3 x P3 x P3 x P3 x P3
Total purchase cost
plain t-shirts P3,384 P3,882 P4,860 P5,178 P17,304
 Schedule 3
Scarlet and Jessa, Incorporated
Direct Materials Purchases Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Units to be produced
(Schedule 2) 1,060 1,260 1,600 1,800 5,720
Direct materials per
unit x 5 x 5 x 5 x 5 x 5
Production needs 5,300 6,300 8,000 9,000 28,600
Desired ending
inventory 630 800 900 530 530
Total needs 5,930 7,100 8,900 9,530 29,130
 Quarter
1 2 3 4 Year
Total needs 5,930 7,100 8,900 9,530 29,130
Less: beginning
inventory -390 -630 -800 -900 -390
Direct materials to
be purchased 5,540 6,470 8,100 8,630 28,740
Cost per ounce x P0.20 x P0.20 x P0.20 x P0.20 x P0.20
Total purchase
cost of ink P 1,108 P 1,294 P 1,620 P 1,726 P 5,748

Total direct
materials pur-
chases cost P4,492 P5,176 P6,480 P6,904 P23,052
Computing Units to be Purchased

Purchases = Direct materials needed for

production + Desired
direct materials in ending
inventory – Direct
materials in beginning
inventory
 Schedule 4
Scarlet and Jessa, Incorporated
Direct Labor Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Units to be produced
(Schedule 2) 1,060 1,260 1,600 1,800 5,720
Direct labor time
per unit (hr.) x 0.12 x 0.12 x 0.12 x 0.12 x 0.12
Total hours needed 127.2 151.2 192 216 686.4
Average wage per
hour x P10 x P10 x P10 x P10 x P10
Total direct labor
cost P1,272 P1,512 P1,920 P2,160 P6,864
 Schedule 4
Scarlet and Jessa, Incorporated
Direct Labor Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Units to be produced
(Schedule 2) 1,060 1,260 1,600 1,800 5,720
Direct labor time
per unit (hr.) x 0.12 x 0.12 x 0.12 x 0.12 x 0.12
Total hours needed 127.2 151.2 192 216 686.4
Average wage per
hour x P10 x P10 x P10 x P10 x P10
Total direct labor
cost P1,272 P1,512 P1,920 P2,160 P6,864
 Schedule 5
Scarlet and Jessa, Incorporated
Overhead Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Budgeted direct labor
hours (Schedule 4) 127.2 151.2 192 216 686.4
Variable overhead
rate x P5 x P5 x P5 x P5 x P5
Budgeted variable
overhead P 636 P 756 P 960 P1,080 P 3,432
Budgeted fixed
overhead 1,645 1,645 1,645 1,645 6,580
Total overhead P2,281 P2,401 P2,605 P2,725 P10,012
 Schedule 5
Scarlet and Jessa, Incorporated
Overhead Budget
For the Year Ended December 31, 2017
Quarter
1 2 3 4 Year
Budgeted direct labor
hours (Schedule 4) 127.2 151.2 192 216 686.4
Variable overhead
rate x P5 x P5 x P5 x P5 x P5
Budgeted variable
overhead P 636 P 756 P 960 P1,080 P 3,432
Budgeted fixed
overhead 1,645 1,645 1,645 1,645 6,580
Total overhead P2,281 P2,401 P2,605 P2,725 P10,012
 Schedule 6
Scarlet and Jessa, Incorporated
Ending Finished Goods Inventory Budget
For the Year Ended December 31, 2017
Unit-cost computation:
Direct materials (P3 + P1) P4.00
Direct labor (0.12 hr. @ P10) 1.20
Overhead:
Variable (0.12 hr. @ P5) 0.60
Fixed (0.12 hr. @ P9.59) 1.15
Total unit cost P6.95
Units Unit Cost Total
Finished goods: Logo T-shirts 200 P6.95 P1,390
 Schedule 6
Scarlet and Jessa, Incorporated
Ending Finished Goods Inventory Budget
For the Year Ended December 31, 2017
Unit-cost computation:
Direct materials (P3 + P1) P4.00
Direct labor (0.12 hr. @ P10) 1.20
Overhead:
Variable (0.12 hr. @ P5) 0.60
Fixed (0.12 hr. @ P9.59) 1.15
Total unit cost P6.95
Units Unit Cost Total
Finished goods: Logo T-shirts 200 P6.95 P1,390
 Schedule 7
Scarlet and Jessa, Incorporated
Cost of Goods Sold Budget
For the Year Ended December 31, 2017
Direct materials used (Schedule 3) P22,880
Direct labor used (Schedule 4) 6,864
Overhead (Schedule 5) 10,012
Budgeted manufacturing costs P39,756
Beginning finished goods 1,251
Goods available for sale P41,007
Less: Ending finished goods (Sched. 6) - 1,390
Budgeted cost of goods sold P39,617
 Schedule 7
Scarlet and Jessa, Incorporated
Cost of Goods Sold Budget
For the Year Ended December 31, 2017
Direct materials used (Schedule 3) P22,880
Direct labor used (Schedule 4) 6,864
Overhead (Schedule 5) 10,012
Budgeted manufacturing costs P39,756
Beginning finished goods 1,251
Goods available for sale P41,007
Less: Ending finished goods (Sched. 6) - 1,390
Budgeted cost of goods sold P39,617
 Schedule 8
Scarlet and Jessa, Incorporated
Selling and Administrative Expenses Budget
For the Year Ended December 31, 2017

Quarter
1 2 3 4 Year
Planned sales in units
(Schedule 1) 1,000 1,200 1,500 2,000 5,700
Variable selling and
administrative
expenses per unit x P0.10 x P0.10 x P0.10 x P0.10 x P0.10
Total variable
expenses P 100 P 120 P 150 P 200 P 570
 Quarter
1 2 3 4 Year

Fixed selling and administrative expenses:

Salaries P1,420 P1,420 P1,420 P1,420 P5,680
Utilities 50 50 50 50 200
Advertising 100 200 300 500 1,100
Depreciation 150 150 150 150 600
Insurance --- --- 500 --- 500
Total fixed expenses P1,720 P1,820 P2,420 P2,120 P8,080
Total selling and
administrative expenses P1,820 P1,940 P2,570 P2,320 P8,650
 Schedule 9
Scarlet and Jessa, Incorporated
Budgeted Income Statement
For the Year Ended December 31, 2017

Sales (Schedule 1) P57,000

Less: Cost of goods sold (Schedule 7) -39,617
Gross margin P17,383
Less: Selling and administrative
expenses (Schedule 8) -8,660
Operating income P 8,733
Less: Interest expense* - 60
Income before taxes P 8,673
Less: Income taxes* -2,550
Net income P 6,123
 Schedule 9
Scarlet and Jessa, Incorporated
Budgeted Income Statement
For the Year Ended December 31, 2017
Sales (Schedule 1) P57,000
Less: Cost of goods sold (Schedule 7) -39,617
Gross margin P17,383
Less: Selling and administrative
expenses (Schedule 8) -8,660
Operating income P 8,733
Less: Interest expense* - 60
Income before taxes P 8,673
Less: Income taxes* -2,550
Net income P 6,123
The Usual Financial
Budgets
 The cash budget
 The budgeted
balance sheet
 The budget for
capital expenditures
 The Cash Budget
Scarlet and Jessa, Incorporated 1st Quarter
Beginning cash balance P 5,200
Add: Cash receipts (cash and credit sales) 10,600
Total cash available 15,800
Less: Cash disbursements -15,777
Less: Minimum cash balance - 1,000
Total cash needs -16,777
Excess or deficiency (-) of cash - 977
Add: Cash from loans 1,000
Less: Loan repayments ----
Ending cash balance P 1,023
P1,000 (loan) - P977 + P1,000
(minimum cash balance)
 The Cash Budget
Scarlet and Jessa, Incorporated 1st Quarter
Beginning cash balance P 5,200
Add: Cash receipts (cash and credit sales) 10,600
Total cash available 15,800
Less: Cash disbursements -15,777
Less: Minimum cash balance - 1,000
Total cash needs -16,777
Excess or deficiency (-) of cash - 977
Add: Cash from loans 1,000
Less: Loan repayments ----
Ending cash balance P 1,023

P1,000 (loan) - P977 + P1,000

(minimum cash balance)
 Scarlet and Jessa, Incorporated
Cash Receipts Pattern for 2017
Source Quarter 1 Quarter 2 Quarter 3 Quarter 4
Cash sales P 2,500 P 3,000 P 3,750 P 5,000
Received on
account from:
Quarter 4, 2016 1,350
Quarter 1, 2017 6,750 750
Quarter 2, 2017 8,100 900
Quarter 3, 2017 10,125 1,125
Quarter 4, 2017 ---- ---- --- 13,500
Total cash receipts P10,600 P11,850 P14,775 P19,625
 Schedule 11
Scarlet and Jessa, Incorporated
Budgeted Balance Sheet
December 31, 2017
Assets
Current assets:
Cash P 7,503
Accounts receivable 1,500
Materials inventory 424
Finished goods inventory 1,390
Total current assets P10,817
Property, plant, and equipment:
Land P 1,100
Building and equipment 36,500
Accumulated depreciation -7,760
Total property, plant, and equipment 29,840
Total assets P40,657
 Liabilities and Owners’ Equity
Current liabilities:
Accounts payable P 1,381
Owners’ equity:
Retained earnings P39,276
Total owners’ equity 39,276
Total liabilities and owners’ equity P40,657
 Static/Fixed Budgets versus Flexible Budgets
 A budget for a particular level of  A budget that provides a firm with
activity. the capability to compute expected
 It compare actual costs with the costs for a range of activity.
budgeted costs for the budgeted  compare actual costs with the actual
level of activity. level of activity
 Suitable for planning.  used in performance evaluation
 The Uses of Flexible Budget

The flexible budget can be used to

prepare the budget before the fact
for the expected level of activity.

Flexible budgeting can be used to

compute what costs should have
been for the actual level of
activity.

Flexible budgeting can help

managers deal with uncertainty by
allowing them to see the expected
outcomes for a range of activities.
Fixed and Flexible Budgeting Variances
ROUND 2
Standard Costs
and Operating
Performance
Measures
 Standard cost

Quantity Standard
Price Standard
Specify how much of an
Specify how much
input should be used to
should be paid for each
make a product or
unit of the input.
provide a service
Deviations from standards deemed significant
are brought to management attention. A practice
known as management by exception.
Variance Analysis Cycle
Setting Standard Cost

Accountants, Engineers,
purchasing agents and
production Managers
combine efforts to set
standards that encourage
efficient future operations.
Setting Standard Costs

Ideal Standard? Practical Standard

• How Direct
Materials
standards and
Direct Labor
Standards are
set
Setting Direct Material Standards

Price Standard Quantity Standard

Setting Direct Labor Standards
Rate Standard Time Standard
Setting Variable Manufacturing
Overhead Standards

Rate Standard

Quantity Standard
General Model for Variance
Analysis
Variance Analysis

Price Quantity
Variance Variance
Difference between
Difference between
the actual quantity
the actual price and
and the standard
standard Price
quantity

Materials Quantity
Materials price
variance, labor
variance, labor rate
efficiency variance
variance, VOH rate
and VOH efficiency
variance
variance
 Actual Quantity Variance Standard Quantity is the standard
Is the amount of direct materials, Quantity allowed for the actual
Direct labor and Variable output of the period.
Overhead actually used
General Model
for Variance
Analysis

Actual Price is the amount actually Standard Price is the amount

paid for the input used. should have been paid for the
input used.
(AQ x AP) – (AQ x SP) (AQ x SP) – (SQ x SP)

AQ = Actual Quantity SQ = Standard Quantity

AP = Actual Price SP = Standard Price
Illustration: Material
Variances
Illustration: Material
Variances
.01 kg per parka x 2000parkas
=210kgs

P1029.00x210kg
=P4.90 per kg
Responsibility for Material Variances
MATERIAL QUANTITY
VARIANCE MATERIAL PRICE VARIANCE
• Production Manager • Purchasing Manager
Illustration: Labor
Variances
 Illustration: Labor
Variances
1.2hour per parka x 2000parkas
=2,400 hours

P26,250 / 2000 hours

=P10.50 per hr
Responsibility for Labor Variances
Production Mangers are
usually held accountable Mix of skill level’s assigned to work tasks
for Labor variances because
they can influence the: Level of employee motivation

Quality of production supervision

Quality of training provided to employees

Illustration: Variable
Manufacturing Overhead
Variances
 Illustration: Variable Manufacturing
Overhead Variances

1.2hour per parka x

2000parkas
=2,400 hours
P10,500/ 2500
hours
=P4.20 per hr
Advantage of Standard Cost

Management by Exception

Promotes Economy and Efficiency

Simplified Bookkeeping

Enhances responsibility accounting

Disadvantage of Standard Cost
Emphasizing standards may exclude other
important objectives

Standard cost reports may not be timely.

Invalid assumptions about the relationship

between labor cost and output

Favourable variances may be

misinterpreted

Emphasis on negative may impact morale

Continuous improvement may be more

important than meeting standards
 Actual Budgeted
Budget
fixed fixed
Variance
overhead overhead
Budgeted Fixed Volume
fixed Overhead
overhead Applied Variance
 Volume
FPOHR (DH – SH)
Variance

Fixed Portion of the

predetermined Denominator Hours
Overhead Rate Standard Hours
VARIABLE COMPONENT OF P90,000.00
THE PREDETERMINED =
OVERHEAD RATE 90,000 MACHINE HOURS

VARIABLE COMPONENT OF
THE PREDETERMINED = P1.00 PER MACHINE- HOUR
OVERHEAD RATE

FIXED COMPONENT OF P270,000.00

THE PREDETERMINED
OVERHEAD RATE =
90,000 MACHINE HOURS

FIXED COMPONENT OF
THE PREDETERMINED = P3.00 PER MACHINE- HOUR
OVERHEAD RATE
Overhea Predetermined Standar
d Applied Overhead rate d hours

Overhead P4.00 per 84,000

Applied machine machine
Hour hours

Overhead
Applied P336,000
 Computing the budget Variance
Budget Actual fixed Budgeted
Variance overhead fixed
overhead

Budget P280,000 - P270,000

Variance

Budget
Variance P10,000.00 – Unfavorable
 Computing the Volume Variance
fixed
Volume Budgeted overhead
Variance fixed applied in
overhead work in
process

Volume P270,000 - (P3 per machine hour x P84,000machine hours)

Variance

Volume
Variance P18,000.00 – Unfavorable
 Volume
FPOHR (DH – SH)
Variance

Fixed Portion of Denominator

the Hours
predetermined Standard Hours
Overhead Rate

Volume
Variance
P3 per machine x (90,000machine hours - P84,000machine hours)
hour -

Volume
Variance P18,000.00 – Unfavorable
FIXED COMPONENT OF P270,000.00
THE PREDETERMINED
OVERHEAD RATE 90,000 MACHINE HOURS

FIXED COMPONENT OF
THE PREDETERMINED = P3.00 PER MACHINE- HOUR
OVERHEAD RATE
 Budget Actual fixed Budgeted
Variance overhead fixed
overhead

Budget P280,000 - P270,000

Variance

Budget
Variance P10,000.00 – Unfavorable
 Predeter
Overhead mined Standar
Applied Overhea d hours
d rate

P4.00 84,000
Overhea per machine
d Applied machine hours
Hour

Overhead
P336,000
Applied
Reconciling Overhead Variances and Under applied or
Over Applied Overhead

Standard cost
system

Unfavorable favorable
Variance are Variance are
equivalent to under equivalent to over
applied overhead applied overhead

The sum of the overhead variances

equals the under / over applied
overhead cost for the period
Computing the Variable overhead
Variances
Variable Manufacturing Overhead Rate Variance = VMRV

VMRV= (AH X AR) – ( AH X SR)

=P100,000 – (88,000 HOURS X P1 PER hour)
= P12,000 Unfavorable

Variable Manufacturing Overhead Efficiency Variance= VMEV

VMEV= (AH X SR) – ( SH X SR)

=P88,000 – (84,000 HOURS X P1 PER hour)
= P4,000 Unfavorable