Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Developing budgeted variable-overhead rates (BVOHRs)



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Developing budgeted variable-overhead rates (BVOHRs)
Students are often confused about the calculation of the BVOHR, so stress the intuition and the timing. Ina single cost pool system, the accountant adds up all the variable costs (e.g. sanitation and maintenance wages, utilities, etc) that are budgeted fora given period of time, usually one year. These are budgeted costs, so this is done before the year starts. Accountants or production personnel identify the allocation base and estimate the number of units of the allocation base for the same time period. Again, this occurs before the period begins. Finally, the BVOHR is calculated by dividing the budgeted VOH costs by the budgeted quantity of the allocation base. Remind students that since it is a budgeted rate, all elements of the rate must be available before the start of the period.


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012

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