Overhead Analysis Structures
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The idea of the predetermined overhead analysis is an important one for fixed costs. The first is a comparison of actual fixed to actual budget. How would this change in the given range of plant production? The actual could change by an increase in insurance costs in the year or supervisor salaries could increase causing something 'fixed' to move in the period under review. One of the other concepts to be shown here but has not been much talked about in the videos is the appearance of favorable variances. In the video examples there are small favorable and unfavorable variances as examples to highlight a particular concept. But what if the variances are consistently favorable? Some may think at first that this is a good thing but is it really? Can anyone say what might consistently favorable variances suggest ?
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The response provides you a structured explanation of predetermined overhead analysis for fixed costs . It also gives you the relevant references.
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The predetermined overhead analysis has several problems. It is made of estimates, can lead to incorrect decisions, and has a weak link to historical costs. The actual fixed to actual budget should not change within the given range of plant production. In some cases the actual fixed increases from the lowest point in the given range of plant production to the highest point in the given range of plant production. The increase is slight (1). If there is a sizeable change in the fixed ...
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