Monday, December 26, 2011

Overhead Variances in Nonmanufacturing Setting

The importance of overhead variances is also very important in settings outside of manufacturing. Managers of companies should consider variance analysis of all variable overhead costs when making pricing and product mix decisions. An astute manager will be able to find the most ideal costs for products if doing this,.

In service setting, fixed overhead variances are especially important. This is because using capacity effectively and to maximum capacity is essential to continued profitability. In these situations,  the information provided by overhead variances can be supplemented by the use managerial experiences and trends. Thus there is not need to restrict the accounting analysis of overhead variances only to manufacturing settings. Accountants can use this process of analysis in all situations.

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