Prepare comprehensive report on Factory Overhead Accounting, Variance and departmentalization for any one organization like multinational or local company of your choice in pakistan ? Also comments on findings.
Example
Comprehensive Report: YZ Company produces gadgets. Overhead is applied to products on the basis of direct labor hours. The denominator level of activity is 4,030 hours. The company's standard cost card is below: Direct materials: 6 pieces per gadget at $0.50 per piece Direct labor: 1.3 hours per gadget at $8 per hour Variable manufacturing overhead: 1.3 hours per gadget at $4 per hour Fixed manufacturing overhead: 1.3 hours per gadget at $6 per hour During January, the company produced 3,000 gadgets. The fixed overhead expense budget was $24,180. Actual costs in January were as follows: Direct materials: 25,000 pieces purchased at a cost of $0.48 per piece Direct labor: 4,000 hours were worked at a cost of $36,000 Variable manufacturing overhead: Actual cost was $17,000 Fixed manufacturing overhead: Actual cost was $25,000 Answer: Actual Fixed Overhead $25,000 Budgetary Fixed Overhead cost 4030 hours * 6$ = $24180 Fixed overhead cost applied to inventory 3900 hours * $6 = $23400 Budget Variance $25000-24180= $820 Volume Variance $24180-23400= $780Variance analysis of Fixed Overhead Variance analysis can be summarized as an analysis of the difference between planned and actual numbers. The sum of all variances gives a picture of the overall over-performance or under-performance for a particular reporting period. Deparmentalisation of different variances is shown in below chart Price/Rate Variance: Difference between actual and standard prices Materials, Labor, Variable Overhead Quantity/Efficiency Variance: rence between actual amo amount of input allowed Variance Budget Variance: Difference between actual and budgeted amounts of fixed overhead cost Fixed Overhead volume variance: Difference overhead costs originally budgetedFixed Over head Accounting Fixed overhead is a set of costs that do not vary as a result of changes in activity. These costs are needed in order to operate a business. One should always be aware of the total amount of fixed overhead costs that a business incurs, so that management can plan to generate a sufficient amount of contribution margin from the sale of products and services to at least offset the amount of fixed overhead. Otherwise, it is impossible to generate a profit. Examples of fixed overhead costs that can be found throughout a business are: Rent Insurance Office expenses Steps involved in acounting of fixed overhead 1. Assign all expenses incurred in the period that are related to factory fixed overhead to a cost pool. 2. Derive a basis of allocation for applying the overhead to products, such as the number of direct labor hours incurred per product, or the number of machine hours used. 3. Divide the total in the cost pool by the total units of the basis of allocation used in the period. Consider the below example if the fixed overhead cost pool was $100,000 and 1,000 hours of machine time were used in the period, then the fixed overhead to apply to a product for each hour of machine time used is $100
