Variations in Standard Costs and Budgets

As is often the case, particularly in internal reports, there are no hard and fast accounting rules for internal reports. Financial managers can develop systems that best suit their company and their industry. Some variations (but not an all-inclusive list) follow.

Segregation of Variable and Fixed Factory Overhead Costs

By separating overhead costs into variable and fixed costs,^[*] the problem of allocating overhead costs can be isolated to only the fixed overhead costs. For instance, supplies may vary with the pace of production, while rent just exists as a fixed cost whatever the production rate. This segregation isolates the problem of how much to consider as a cost of each house, but it does not make the problem go away.

^[*] The concept of variable and fixed costs or expenses was covered in Chap. 4.