Provide general discussion on predetermined variable overhead criterion and its possible dependence on the activity for which it is used. Provide a variable costing income statement in which variable overhead is divided among different activities, and that each activity has its own predetermined variable overhead criterion. Explain your example in detail and provide in- text citations. Variable overhead are the overhead that tend to vary in direct proportion and same direction to changes in the production activity, sales activity, or some other measures of volume or cost driver. Therefore, the cost increase/ decrease in proportion to increase / decrease in volume/ cost driver. Variable cost changes in direct proportion to and in the same direction as the changes in activity levels or outputs. Variable costs are activity based because they are incurred as direct result of output, activity, or work done. If the output doubles, variable costs will also double and vice versa. If a shop remains closed during a time there would be no variable costs. There are some characteristics of variable cost are as follow: Total variable costs are proportionately related to operating activity levels. Variable cost per unit is fixed. Variable costs can be regulated and controlled in the same responsibility center and in the short run as well. Cost that changes proportionately in total but remains fixed per unit is variable. Some of the common examples of variable overhead are as follows; 1. Purchase of production supplies and raw materials 2. Payment of wages 3. Material handling and shipping cost 4. Sales commission 5. Packaging cost. Let us assume that CG Company is producing noodles. The raw material required in wheat, flour, sugar, salt, starch, vegetables oils, different spices, sodium bicarbonate. Similarly, different labors are employed along with machine to convert semi-finished material into final product. After the production of finished noodles they are to be packed and well labeled. In this example the variable costing consists of raw material, labor and direct expenses. Let us elaborate more briefly to present in income statement under variable costing. CG Company is producing Noodles which require material per packet of Rs 2 and similarly labor are paid on the basis of piece rate system which they provide Rs 5 per packet. Similarly, they include other direct expenses including custom duty, utilities etc., which cost Rs 2 per packet. Likewise different indirect expenses incurred while producing the noodles such as factory rent Rs 10,000, depreciation on production equipment of Rs 20,000 and material management staff compensation of Rs 20,000. After producing final product they packed and labeled the noodles which cost Rs 2 per packet, store house rent Rs 10,000, advertising cost Rs 20,000 and salesmen commission of Rs 3 per packet. However company sets selling price per packet is Rs 25 and planned to produce 10,000 packets in the month. So now