![]() Note that total actual variable overhead costs remain at $100,000, but they are simply broken out into 3 activities ($100,000 = $42,000 for purchase orders + $31,000 for product testing + $27,000 for energy costs). The variance calculations are also the same except variances are calculated for three activities rather than one. Notice that the format for Figure 10.11 "Variable Overhead Variance Analysis for Jerry’s Ice Cream Using Activity-Based Costing" is the same as for Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream". Figure 10.11 "Variable Overhead Variance Analysis for Jerry’s Ice Cream Using Activity-Based Costing" shows the resulting variable overhead variance analysis. ![]() Recall that Jerry’s produced 210,000 units for the year. ![]() Similar to the traditional costing approach, the variable overhead spending variance for activity-based costing is calculated for each activity as follows: How would variance analysis be implemented for a company that uses activity-based costing?Īnswer: Regardless of whether a company uses the traditional costing approach or an activity-based costing approach, the process of performing variance analysis is the same. Rather than establishing one standard variable overhead rate and standard quantity based on one cost driver, activity-based costing establishes several standard variable overhead rates and quantities, each having its own cost driver. Question: As discussed in Chapter 3 "How Does an Organization Use Activity-Based Costing to Allocate Overhead Costs?", activity-based costing focuses on identifying activities required to make a product, forming cost pools for each activity, and allocating overhead costs to products based on the products’ use of each activity. Explain how to use cost variance analysis with activity-based costing. ![]()
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