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UP level accounting Essay

Category: Finance & Accounting Pages: 3 Type: Essay Level: College
What is even more important is the correct booking of the overheads, since overheads not booked at all, or wrongly booked could lead to a host of critical problems later.
The top management takes strategic decisions based on the cost data provided and it is therefore, it is essential that it be factually correct.
(ii) The two variances depicted in Exhibit 3 consider the recovery of fixed overheads when the actual procedures performed, instead of the standard 50,000 procedures, was actually only 49,000 procedures. Fixed costs were considered at $50, 00,000 for the predetermined standard 50,000 procedures. But the actual procedures billed were only 49,000 and therefore $ 100 X 1000 - $ 100,000 was unrealized. (Blocher et al, 2008).
(iii) Regarding Exhibit 4, the mismatch occurred because the aspect of fixed cost overheads was not correctly judged. The mismatch occurred because of the 460 examinations made, only 310 were billed, leading to 150 examinations carried out but not billed and the profits have been inflated by (460 - 310) X $ 20 = $ 3000. This is the reason why the profits are overstated. (Blocher et al, 2008).
Question 3
(i) Traditional standard costing is a system by which predetermined value / efficiency standards are assigned for each element of cost. The actual performance is then matched against their Standard costs, and the variances, positive or negative are determined. This is an invaluable management tool since there is a complete breakup of cost components and determinants, and for each item of costs, it is possible to know the standard, the actual and the resultant variances. Hence adverse variances could be effectively monitored by