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


Financial and non-financial performance measures



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Financial and non-financial performance measures
Day-to-day control of MOH items occurs on the factory floor through physical observation and physical measures of individual line items (e.g. overtime authorisation, downtime, scrap rates. The accounting system transforms these physical measures into financial measures. The financial data inform lower level managers of the materiality of the variances, and upper management can also use these data in evaluating performance across departments.
Actual, normal and standard costing
Remind students that under a standard costing system, WIP is kept at standard costing OH-
Allocated, which equals BP of OH, that is, (BOHR/unit of allocated base) × BQIA (of allocation base) for actual number of outputs. This calculation is analogous to the WIP debits for DM and
DL covered in Chapter 15. Also note that the calculation differs from normal costing OH-
Allocated, which would be BOHR × AQ
base
Solutions to review questions
16.1
Effective planning of variable-overhead costs involves
1
Planning to undertake only those variable-overhead activities that add value.
2
Planning to use the drivers of costs in those activities in the most efficient way.
16.2
At the start of an accounting period, a larger percentage of fixed-overhead costs are locked in than is the case with variable-overhead costs.
16.3
Steps in developing a budgeted variable-overhead cost rate are
1
Identify the costs to include in the variable-overhead cost pools.

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