AFM481 Chapter Notes - Chapter 8: Fixed Cost, Activity-Based Costing, Human Capital

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM481
• Professor: Grant Russell

Document Summary

Lease or acquisition cost of capacity must be recovered through the sale of goods or services. Intangible skills: human capital, assigning fixed manufacturing overhead, fixed cost pools do not change when the volume of output changes. Fixed overhead cost variance: fmoh static-budget variance = actual results - static-budget amount, entire fmoh flexible-budget variance is attributed to rate variance since efficiency does not affect fmoh. Fmoh efficiency variance = never a variance: fmoh rate variance = actual results - amount allowed for relevant range (same as static and flexible amount) Interpretation of fixed manufacturing overhead rate variance: reasons for the unfavourable fmoh rate, poor/unrealistic fmoh projections in the original budget process, an unplanned salary increase to retain the plant manager. Journal entries for fixed overhead costs and variances. To record portion of variance arising from inefficiency that could have been avoided, prorated for the portion that was unavoidable.