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



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solutions-manual-to-bhimani-et-al-management-and-cost-accounting-pearson-2012-1
Production-volume variance
The SB and SVV do not appear in Exhibit 16.3 in Chapter 16: the column to the extreme right Allocated) is NOT the SB amount. The PVV arises only for fixed costs. For variance costs, the overhead allocation will always equal the FB amount. When we allocate FMOH to WIP for stock costing, we unitise FMOH and treat it as if it were a variable cost. In contrast, FB FMOH is FIXED, FIXED, FIXED across output levels, in the relevant range. FB FOH equals FOH allocated to WIP only if the number of output units actually produced equals the denominator level. This creates a variance that is unique to FMOH
– the production-volume variance.


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 Students often erroneously believe the FOH PVV is analogous to the VOH efficiency variance. The FOH FBV is analogous to the VOH FBV, which includes both the VOH spending and the efficiency variances. The PVV is anew concept that is unique to FOH. The PVV arises only because the lump-sum FOH in the FB usually differs from the FOH allocated to WIP (BOHR ×
BQIA). (In contrast, for DM, DL and VOH, the FB = Costs allocated to WIP; there can be no
PVV for these costs)

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