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Financial & Managerial Accounting, 5th Edition
1188
Exercise 21-6 (20 minutes)
1. Predetermined overhead rate computations
Expected volume ......................................................................
75%
Expected total overhead ..........................................................
$2,100,000
Expected hours ........................................................................
375,000 hrs.
Variable cost per hour ($1,500,000/ 375,000) .........................
$4.00
Fixed cost per hour ($600,000/ 375,000) ................................
$1.60
Total cost per hour ($2,100,000/ 375,000) ..............................
$5.60
2. Variable overhead cost variance
Variable overhead cost incurred [given] ................................
$1,375,000
Variable overhead cost applied [350,000 hrs. @ $4.00] ...........................
1,400,000
Variable overhead cost variance ................................................................
$ 25,000 F
Fixed overhead cost variance
Fixed overhead cost incurred [given] ..............................................
$ 628,600
Fixed overhead cost applied [350,000 hrs. @ $1.60] ......................
560,000
Fixed overhead cost variance ..........................................................
$ 68,600 U
Exercise 21-7A (20 minutes)
1.
Variable overhead spending and efficiency variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
(Given)
340,000 x $4.00
350,000 x $4.00
hours per hour
hours per hour
$1,375,000
$1,360,000
$1,400,000
$15,000 U
(Spending variance)
$40,000 F
(Efficiency variance)
$25,000 F
(Total variable overhead variance)
Interpretation:
The $15,000 unfavorable spending variance means the actual cost of variable
overhead is more than budgeted. This unfavorable variance can occur
Exercise 21-7 A (continued)
2.
Fixed overhead spending and volume variances
Actual Overhead
Budgeted Overhead
Applied Overhead
(Given)
(Given)
350,000 x $1.60
hours per hour
$628,600
$600,000
$560,000
$28,600 U
(Spending variance)
$40,000 U
(Volume variance)
Exercise 21-8 (30 minutes)
1. Preliminary computations
Actual quantity: 22,000 bd. ft. (given)
Direct material cost variances
Actual units at actual cost [22,000 bd. ft. @ $12.10] ................................
$266,200
Standard units at standard cost [(24,000 bd. ft. @ $12.00] ......................
288,000
Direct material cost variance ................................................................
$ 21,800 F
Price and quantity variances
Actual Cost
AQ x AP
AQ x SP
Standard Cost
SQ x SP
22,000 x $12.10
22,000 x $12.00
24,000 x $12.00
bd. ft. per bd. ft.
bd. ft. per bd. ft.
bd. ft. per bd. ft.
$266,200
$264,000
$288,000
$2,200 U
(Price variance)
$24,000 F
(Quantity variance)
$21,800 F
(Total materials variance)
Alternate solution format
Price variance
= AQ x (AP – SP)
= 22,000 board feet x ($12.10 - $12.00)
= $2,200 U
Quantity variance
= (AQ – SQ) x SP
= (22,000 - 24,000) board feet x $12.00/board foot
= $24,000 F
Price variance .....................
$ 2,200 U
Quantity variance ...............
24,000 F
Total variance .....................
$21,800 F
2. The unfavorable price variance means the actual price paid is more than
Financial & Managerial Accounting, 5th Edition
1192
Exercise 21-9A (25 minutes)
1.
Goods in Process Inventory ....................................................
288,000
Direct Materials Price Variance* .............................................
2,200
Direct Materials Quantity Variance ................................
24,000
Raw Materials Inventory .................................................
266,200
To record the favorable price and quantity variances.
* This price variance can alternatively be computed and recorded when the direct materials are
purchased.
2.
Direct Materials Quantity Variance ................................
24,000
Direct Materials Price Variance ................................
2,200
Cost of Goods Sold .........................................................
21,800
To close the unfavorable price and favorable quantity
variances to cost of goods sold.
3. The $24,000 materials quantity variance should be investigated because of
Exercise 21-10 (20 minutes)
Information given
Planned units to be produced = 80% x 50,000 capacity = 40,000 units
1. Total overhead planned at 80% level (25,000 direct labor hours)
Predetermined
Cost
Cost per
Hour
Fixed overhead.................................
$ 50,000
$ 2.00
Variable overhead ............................
275,000
11.00
Total overhead .................................
$325,000
$13.00
2. Total overhead variance
Total actual overhead (given) ................................................................
$305,000
Applied overhead ($13/hr. x 21,875 hours) ................................
284,375
Total overhead variance ................................................................
$ 20,625 U
Exercise 21-11 (30 minutes)
1. Preliminary variance computations
Variable overhead spending and efficiency variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
22,000 x $11
21,875 x $11
$ *
$242,000
$240,625
$ *
(Spending variance)
$ 1,375 U
(Efficiency variance)
Exercise 21-12 (25 minutes)
1. Sales price and sales volume variances
Sales Actual Sales
Flexible Budget
Fixed Budget
Units 350
350
365
Price/unit $1,200
$1,100
$1,100
(350 x $1,200)
(350 x $1,100)
(365 x $1,100)
Total $420,000
$385,000
$401,500
$35,000 F
(Sales price variance)
$16,500 U
(Sales volume variance)
2. Interpretation
Exercise 21-13 (10 minutes)
Exercise 21-14 (15 minutes)
Exercise 21-15 (5 minutes)
Following management by exception, the company should focus on those
variances that exhibit the greatest differences from the standard. This would
Exercise 21-16 (25 minutes)
Part 1
Direct materials price variance:
Actual cost of direct materials used (16,000 x $4.05) ...............................
$ 64,800
Actual quantity used x Standard price (16,000 x $4.00) ...........................
64,000
Direct materials price variance (unfavorable) ................................
$ 800
Direct materials quantity variance:
Actual quantity used x Standard price (16,000 x $4.00) ...........................
$ 64,000
Standard quantity x Standard price (15,000* x $4.00) ...............................
60,000
Direct materials quantity variance (unfavorable) ................................
$ 4,000
*30,000 units x ½ pound per unit = 15,000 pounds
Part 2
Direct labor rate variance:
Actual hours x Actual rate per hour (5,545 x $19.00***) ...........................
$105,355
Actual hours x Standard rate per hour (5,545 x $20.00) ...........................
110,900
Direct labor rate variance (favorable) .........................................................
$ 5,545
Direct labor efficiency variance:
Actual hours x Standard rate per hour (5,545 x $20.00) ...........................
$110,900
Standard hours x Standard rate per hour (5,000** x $20.00) ....................
100,000
Direct labor efficiency variance (unfavorable) ................................
$ 10,900
PROBLEM SET A
Problem 21-1A ( 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
Standard units at standard cost [1,620,000 lbs. @ $4.00] ................................
6,480,000
Direct material cost variance................................................................
$ 141,500 U
Direct Materials Price and Quantity Variances
Actual Cost
AQ x AP
AQ x SP
Standard Cost
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
$161,500 U
(Price variance)
$20,000 F
(Quantity variance)
$141,500 U
(Total materials variance)
Part 2 Direct Labor Variances
Direct labor cost variances
Actual units at actual cost [265,000 hrs. @ $13.75] ................................
$3,643,750
Standard units at standard cost [270,000 hrs. @ $14.00] ................................
3,780,000
Direct labor cost variance ................................................................
$ 136,250 F
Direct Labor Rate and Efficiency Variances
Actual Cost
AH x AR
AH x SR
Standard Cost
SH x SR
265,000 x $13.75
265,000 x $14.00
270,000 x $14.00
$3,643,750
$3,710,000
$3,780,000
$66,250 F
(Rate variance)
$70,000 F
(Efficiency variance)
Financial & Managerial Accounting, 5th Edition
1198
Problem 21-1A (Continued)
Part 3 Overhead Variances
Controllable variance
Actual overhead [$2,350,000 + $2,200,000] ...............................
$4,550,000
Budgeted overhead [from flexible budget, 90% capacity] ......
4,560,000
Controllable variance ................................................................
$ 10,000 F
Fixed overhead volume variance
Budgeted fixed overhead [given, at 80% capacity] ..................
$2,400,000
Fixed overhead cost applied [270,000 hrs. @ $10] ..................
2,700,000
Fixed overhead volume variance...............................................
$ 300,000 F
Problem 21-2AA (15 minutes)
(a) Variable overhead
Variable Overhead Spending and Efficiency Variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
265,000 x $8
270,000 x $8
$2,200,000
$2,120,000
$2,160,000
$80,000 U
(Spending variance)
$40,000 F
(Efficiency variance)
$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
$50,000 F
(Spending variance)
$300,000 F
(Volume variance)
$350,000 F
(Total fixed overhead variance)
(c) Controllable variance
Variable overhead spending variance ...................................
$ 80,000 U
Variable overhead efficiency variance ...................................
40,000 F
Fixed overhead spending variance ........................................
50,000 F
Total overhead controllable variance ....................................
$ 10,000 F
Problem 21-3A (60 minutes)
Part 1
Variable or Fixed Classification
Amount
per unit
Variable sales (total divided by 15,000 units)
Sales ..................................................................................................
$ 200.00
Variable costs (total divided by 15,000 units)
Direct materials ................................................................................
$ 65.00
Direct labor .......................................................................................
15.00
Machinery repairs ............................................................................
4.00
Utilities ($45,000 variable) ...............................................................
3.00
Packaging .........................................................................................
5.00
Shipping ............................................................................................
7.00
Total variable costs ..........................................................................
$ 99.00
Fixed costs
Depreciation—Plant equipment ......................................................
$ 300,000
Utilities ($195,000 - $45,000 variable) .............................................
150,000
Plant management salaries .............................................................
200,000
Sales salary ......................................................................................
250,000
Advertising expense ........................................................................
125,000
Salaries .............................................................................................
241,000
Entertainment expense ....................................................................
90,000
Total fixed costs ...............................................................................
$1,356,000
Problem 21-3A (Continued)
Part 2
PHOENIX COMPANY
Flexible Budgets
For Year Ended December 31, 2013
Flexible Budget
Flexible
Flexible
Variable
Amount
per Unit
Total
Fixed
Cost
Budget for
Unit Sales
of 14,000
Budget for
Unit Sales
of 16,000
Sales .....................................
$200.00
$2,800,000
$3,200,000
Variable costs
Direct materials .................
65.00
910,000
1,040,000
Direct labor ........................
15.00
210,000
240,000
Machinery repairs .............
4.00
56,000
64,000
Utilities ...............................
3.00
42,000
48,000
Packaging ..........................
5.00
70,000
80,000
Shipping .............................
7.00
98,000
112,000
Total variable costs ..........
99.00
1,386,000
1,584,000
Contribution margin ............
$101.00
1,414,000
1,616,000
Fixed costs
Depreciation—Plant Equip ....
$ 300,000
300,000
300,000
Utilities ...............................
150,000
150,000
150,000
Plant mgmt. salaries .........
200,000
200,000
200,000
Sales salary. ......................
250,000
250,000
250,000
Advertising expense .........
125,000
125,000
125,000
Salaries ..............................
241,000
241,000
241,000
Entertainment expense ....
90,000
90,000
90,000
Total fixed costs................
$1,356,000
1,356,000
1,356,000
Income from operations .......
$ 58,000
$ 260,000
Financial & Managerial Accounting, 5th Edition
1202
Problem 21-3A (Continued)
Part 3
Operating income increase for a 15,000 to 18,000 unit sales increase
Possible sales (units) ...............................................................
18,000
Units
Contribution margin per unit ...................................................
x $101
Total contribution margin ........................................................
$1,818,000
Less: Fixed costs ................................................................
(1,356,000)
Potential operating income .....................................................
$ 462,000
vs. Budgeted income for 2013 ................................................
159,000
Increase .....................................................................................
$ 303,000*
*Alternate solution format
Unit increase ...........................................................................................
3,000
Units
Contribution margin per unit ................................................................
x $101
Increase in contribution margin .............................................................
$303,000
Since there is no increase in fixed costs, the expected increase in operating
income is the same $303,000.
Part 4
Operating income (loss) at 12,000 units
Possible sales (units) ...............................................................
12,000
Units
Contribution margin per unit ...................................................
x $101
Total contribution margin ........................................................
$1,212,000
Less: Fixed costs ................................................................
(1,356,000)
Potential operating loss ...........................................................
$ (144,000)
