Developing Budgeted Fixed Overhead Rates: Standard Costing at Webb Company 303
Developing Budgeted Fixed Overhead Rates: Standard Costing at Webb Company 303
Developing Budgeted Fixed Overhead Rates: Standard Costing at Webb Company 303
multiple cost-allocation bases (for example machine hours and direct manufacturing labor-
hours) and corresponding variable overhead cost pools, Webb would repeat Steps 1 to 4 for
each cost pool.
The $12-per-jacket rate represents the amount by which managers expect Webb’s variable
overhead costs to change when the output changes. As the number of jackets manufactured in-
creases, the variable overhead costs allocated to output (for inventory costing) increase at the
rate of $12 per jacket. The $12 per jacket constitutes the firm’s total variable overhead costs
per unit of output, including the costs of energy, repairs, indirect labor, and so on. Managers
control variable overhead costs by setting a budget for each of these line items and then inves-
tigating the possible causes of any significant variances.
3
Because Webb plans its capacity over multiple periods, anticipated demand in 2020 could be such that budgeted output for 2020 is
less than Webb’s capacity. Companies vary in the denominator levels they choose. Some choose budgeted output and others choose
capacity. In either case, the approach and analysis presented in this chapter is unchanged. Chapter 9 discusses in more detail the
implications of choosing a denominator level.