Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-3A (Continued)
Part 3 Direct Materials Variances
Preliminary computations
Actual material used: 91,000 lbs. (given)
Standard quantity of materials: 15,000 units x 6 lb./unit = 90,000 lb.
Direct Materials Price and Quantity Variances
Actual Costs
AQ x AP AQ x SP
Standard Costs
SQ x SP
$9,100 U
(Price variance)
$5,000 U
(Quantity variance)
$14,100 U
(Total materials variance)
Alternate solution format
Price variance = AQ x (AP – SP)
= 91,000 lb. x ($5.10 – $5.00) per lb.
= 91,000 lb. x ($0.10) per lb.
= $9,100 U
Total variance...…......….......$14,100 U
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-3A (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used: 30,500 hours (given)
Direct labor cost variances
Actual units at actual cost [30,500 hrs. @ $17.25]………………….………..…..……..$526,125
Direct Labor Rate and Efficiency Variances
Actual Costs
Standard Costs
$526,125 $518,500 $510,000
$16,125 U
(Total labor variance)
Alternate solution format
Rate variance = AH x (AR – SR)
Rate variance………..…......… $ 7,625 U
Efficiency variance…...…..... 8,500 U
Total……………………………….. $16,125 U
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-3A (Concluded)
Part 5
ANTUAN COMPANY
Overhead Variance Report
For Month Ended October 31
Volume Variance
Expected production level……………………………………………….75% of capacity
Production level achieved………………………………….….…….….75% of capacity
Volume variance……………………………………………..…….…….….none
Flexible Actual
Controllable Variance Budget Results Variances*
Variable overhead costs
Indirect materials………………………………..$ 45,000 $ 44,250 $ 750 F
Indirect labor………………………………………180,000 177,750 2,250 F
Fixed overhead costs
Depreciation—Building……………………....24,000 24,000 0
Depreciation—Machinery……….…….…….80,000 75,000 5,000 F
Taxes and insurance…………..….….…….…12,000 11,500 500 F
*F = Favorable variance; and U = Unfavorable variance.\Problem 23-4A (40 minutes)
Part 1 Direct Materials Variances
Direct materials cost variances
Actual units at actual cost [1,615,000 lbs. @ $4.10]……………………………………..$6,621,500
Direct Materials Price and Quantity Variances
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Chapter 23 – Flexible Budgets and Standard Costs
AQ x AP AQ x SP SQ x SP
1,615,000 x $4.10 1,615,000 x $4.00 1,620,000 x $4.00
$6,621,500 $6,460,000 $6,480,000
Part 2 Direct Labor Variances
Direct labor cost variances
Actual units at actual cost [265,000 hrs. @ $13.75]………………..………..…..……..$3,643,750
Direct Labor Rate and Efficiency Variances
Actual Cost
AH x AR AH x SR
Standard Cost
SH x SR
$66,250 F
$70,000 F
Problem 23-4A (Continued)
Part 3 Overhead Variances
Controllable variance
Actual overhead [$2,350,000 + $2,200,000]....……..…..…..…..….$4,550,000
Fixed overhead volume variance
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Chapter 23 – Flexible Budgets and Standard Costs
Budgeted fixed overhead [given, at 80% capacity]..................$2,400,000
Problem 23-5AA (15 minutes)
(a) Variable overhead
Variable Overhead Spending and Efficiency Variances
Actual Overhead
AH x AVR AH x SVR
Applied Overhead
SH x SVR
$40,000 U
(Total variable overhead variance)
(b) Fixed overhead
Fixed Overhead Spending and Volume Variances
Actual Overhead Budgeted Overhead Applied Overhead
270,000 x $10
$2,350,000 $2,400,000 $2,700,000
(c) Controllable variance
Variable overhead spending variance……………………………… $ 80,000 U
Variable overhead efficiency variance…………………….…….… 40,000 F
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-6AA (45 minutes)
Part 1
Dec. 31* Work in Process Inventory………………………………..….…….…..100,000
Direct Materials Quantity Variance………………………….…….…3,000
Dec. 31 Work in Process Inventory………………………………..….…….…..95,800
Direct Labor Rate Variance………………………………………………1,200
Direct Labor Efficiency Variance……..…….…….…….…… 7,000
Dec. 31 Work in Process Inventory………………………………..….…….…..354,000
Controllable Variance……………………………………………………...9,000
* Alternatively, some companies compute and record the price variance
when materials are purchased. This would yield two separate entries:
(1) Purchase of materials
Raw Materials Inventory………………………………………………………….……..103,000
Direct Materials Price Variance……………………………………..…………..500
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-6AA (Continued)
Part 2
Under management by exception, the manager would first identify the largest
problems were dealt with, if at all.
The largest variance amounts occur for the materials quantity variance, the
direct labor efficiency variance, and the two overhead variances. The manager
After the relatively larger amounts are explained and actions taken, the
* The unfavorable volume variance indicates that the company produced fewer
items than expected. Managers would need to determine whether this was
because of declining sales, idle time, breakdowns, or other reasons.
PROBLEM SET B
Problem 23-1B (60 minutes)
Part 1
Variable or Fixed Classification
Per Unit
Amount
Variable sales (total divided by 20,000 units)
Sales…………………………………………………………………………….…….… $ 150.00
Variable costs (total divided by 20,000 units)
Direct materials…………………………………………..….…….…….…….….. $ 60.00
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Chapter 23 – Flexible Budgets and Standard Costs
Total variable costs……………………………………………….….…….…….. $ 88.15
Fixed costs
Depreciation—Machinery…………………………………….…….…….……. $ 250,000
Utilities (75% fixed)…………………………………….….…….…….…….…… 150,000
Plant management salaries………………………………………..….…….… 140,000
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