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Exercise 21-15 (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
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
**30,000 units x 1/6 hour per unit = 5,000 hours
***$105,355/5,545 hours
Exercise 21-16 (30 minutes)
1.
October variances
Preliminary computations
Actual hours: 16,250 hours (given)
Standard hours: 5,600 units x 3 hrs./unit = 16,800 hrs.
Actual rate: $247,000/16,250 hours = $15.20/hr.
Exercise 21-16 (Concluded)
November variances
Preliminary computations
Actual hours: 22,000 hours (given)
Standard hours: 6,000 units x 3 hrs./unit = 18,000 hours
Exercise 21-17 (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 21-18A (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
Exercise 21-18A (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)
$68,600 U
(Total fixed overhead variance)
Interpretation
The $28,600 unfavorable spending variance means actual cost of fixed
overhead is more than budgeted.
The $40,000 unfavorable volume variance is the result of the company actually
operating at 70% capacity rather than the budgeted 75% capacity. Not all of
the budgeted fixed overhead is applied to production because actual volume
fell below budgeted volume.
3. The controllable variance is computed as:
Variable overhead spending variance ...................................
$15,000 U
Variable overhead efficiency variance ...................................
40,000 F
Fixed overhead spending variance ........................................
28,600 U
Controllable variance...............................................................
$ 3,600 U
The controllable variance refers to activities that are considered within
management’s control. The unfavorable controllable variance of $3,600
indicates that overall, management performed relatively poorly in controlling
overhead costs.
Exercise 21-19 (20 minutes)
Information given
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 21-20 (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)
$ *
(Total variable overhead variance)
Fixed overhead spending and volume variances
Actual Overhead
Budgeted Overhead
Applied Overhead
(Given)
21,875 x $2
$ *
$50,000
$43,750
$ *
(Spending variance)
$6,250 U
(Volume variance)
$ *
(Total fixed overhead variance)
* Not computable from information given
2. Overhead controllable variance*
Total actual overhead (given)
$305,000
Flexible budget overhead
Variable ($11/hr. x 21,875 hours) ..............................
$240,625
Fixed (given) ...............................................................
50,000
Total ................................................................................................
290,625
Overhead controllable variance ................................................................
$ 14,375 U
* Alternative solution approach: We know the overhead controllable variance is equal to the
total overhead variance less the overhead volume variance. Then, using the results from
parts 1 and 2, we can compute the overhead controllable variance as
Overhead controllable variance = $20,625 U - $6,250 U = $14,375 U
EX
Exercise 21-21 (25 minutes)
Preliminary calculations:
Variable overhead rate per DL hour = $48,000/24,000 = $2 per hour
Fixed overhead rate per DL hour = $44,400/24,000 = $1.85 per hour
Exercise 21-21 (continued)
Part 3
JAMES CORP.
Overhead Variance Report
For Month Ended May 31
Volume Variance
Expected production level ....................................................
80% of capacity
Production level achieved ....................................................
90% of capacity
Volume variance ................................................................
$5,550 (favorable)
Flexible
Actual
Controllable Variance
Budget
Results
Variances*
Variable overhead costs
Indirect materials ................................
$16,875
$15,000
$1,875
F
Indirect labor ............................................
27,000
26,500
500
F
Power ........................................................
6,750
6,750
0
Maintenance .............................................
3,375
4,000
625
U
Total variable costs ................................
54,000
52,250
1,750
F
Fixed overhead costs
Rent of factory building ..........................
15,000
15,000
0
Depreciation—Machinery ........................
10,000
10,000
0
Supervisory salaries ................................
19,400
22,000
2,600
U
Total fixed costs................................
44,400
47,000
2,600
U
Total overhead costs ................................
$98,400
$99,250
$ 850
U
* F = Favorable variance; and U = Unfavorable variance.
