Problem 21-3A (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used:
30,500 hours (given)
Standard hours:
15,000 units x 2 hrs./unit = 30,000 hours
Actual rate:
$17.25/hr. (given)
Standard rate:
$17.00/hr. (given)
Actual units at actual cost [30,500 hrs. @ $17.25] ……………………….….
Standard units at standard cost [30,000 hrs. @ $17.00] ……………….………….
Direct labor cost variance ………………………………………………………….……………..
Direct Labor Rate and Efficiency Variances
Actual Costs
AH x AR
AH x SR
Standard Costs
SH x SR
30,500 x $17.25
30,500 x $17.00
30,000 x $17.00
hours per hr.
hours per hr.
hours per hr.
$526,125
$518,500
$510,000
$7,625 U
(Rate variance)
$8,500 U
(Efficiency variance)
$16,125 U
(Total labor variance)
Alternate solution format
Rate variance
=
AH x (AR – SR)
=
30,500 hours x ($17.25 – $17.00) per hour
=
30,500 x $0.25 per hour
=
$7,625 U
Efficiency variance
=
(AH – SH) x SR
=
(30,500 – 30,000) hours x $17.00 per hour
=
500 hours x $17.00 per hour
=
$8,500 U
Rate variance ……………..…..
$ 7,625 U
Efficiency variance ……..…..
8,500 U
Total …………………………..
$16,125 U
Problem 21-3A (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
Power ………………………………………….……..
45,000
43,000
2,000
F
Repairs and maintenance …………….……..
90,000
96,000
6,000
U
Total variable costs ……………………..……
360,000
361,000
1,000
U
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
Supervision ………………………………………..
79,000
89,000
10,000
U
Total fixed costs …………………………..
195,000
199,500
4,500
U
Total overhead costs …………………….…….
$555,000
$560,500
$ 5,500
U
*F = Favorable variance; and U = Unfavorable variance.
Problem 21-4A (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
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)
$136,250 F
(Total labor variance)
Problem 21-4A (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 21-5AA (15 minutes)
(a) Variable overhead
Variable Overhead Spending and Efficiency Variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
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 21-6AA (45 minutes)
Part 1
Dec. 31*
Work in Process Inventory …………………………..
100,000
Direct Materials Quantity Variance ……………….………….
3,000
Direct Materials Price Variance …………………………..
500
Raw Materials Inventory …………………………..
102,500
To record materials costs, including
the unfavorable quantity and
favorable price variances.
Dec. 31
Work in Process Inventory …………………………..
95,800
Direct Labor Rate Variance …………………………..
1,200
Direct Labor Efficiency Variance ………….……………….
7,000
Factory Payroll Payable ……………………….….
90,000
To record direct labor costs, including
the favorable efficiency variance and
unfavorable rate variance.
Dec. 31
Work in Process Inventory …………………………..
354,000
Controllable Variance ………………………………….………………….
9,000
Volume Variance …………………………..…………….…………….
12,000
Factory Overhead ……………………………….………………….
375,000
To record overhead costs, including
the unfavorable volume and unfavorable
controllable variances.
* 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
Accounts Payable …………………………………..…………………..
102,500
(2) Issuance of materials into production
Work in Process Inventory …………………………..
100,000
Direct Materials Quantity Variance ………………..…………
3,000
Raw Materials Inventory …………………………..
103,000
Problem 21-6AA (Continued)
Part 2
Under management by exception, the manager would first identify the largest
variances, attempt to uncover their causes, and then implement actions aimed
at correcting them. The smaller variances would be tackled after the major
problems were dealt with, if at all.
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Financial and Managerial Accounting, 6th Edition
1260
PROBLEM SET B
Problem 21-1B (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
Direct labor …………………………………………………………………………...
13.00
Machinery repairs …………………………………………………………………..
2.85
Utilities (25% variable) …………………………………………………………...
2.50
Packaging ……………………………………………………….…………………….
4.00
Shipping …………………………..…………………………………………………...
5.80
Total variable costs ………………………………………………………………..
$ 88.15
Fixed costs
Depreciation—Machinery ……………………………………………………….
$ 250,000
Utilities (75% fixed) ………………………………………………………………..
150,000
Plant management salaries …………………………………………………….
140,000
Sales salary …………………………………………………………………………...
160,000
Advertising expense ……………………………………………………………...
81,000
Salaries ………………………………………………………………………………….
241,000
Entertainment expense …………………………………………………………..
90,000
Total fixed costs …………………………..………………………………………….
$1,112,000
Problem 21-1B (Continued)
Part 2
TOHONO COMPANY
Flexible Budgets
For Year Ended December 31, 2015
Flexible Budget
Flexible
Flexible
Variable
Amount
per Unit
Total
Fixed
Cost
Budget for
Unit Sales
of 18,000
Budget for
Unit Sales
of 24,000
Sales ……………………………….
$150.00
$2,700,000
$3,600,000
Variable costs
Direct materials ……………..
60.00
1,080,000
1,440,000
Direct labor ……………………
13.00
234,000
312,000
Machinery repairs ………….
2.85
51,300
68,400
Utilities ………………………….
2.50
45,000
60,000
Packaging ……………………..
4.00
72,000
96,000
Shipping………………………..
5.80
104,400
139,200
Total variable …………………
88.15
1,586,700
2,115,600
Contribution margin …………
$ 61.85
1,113,300
1,484,400
Fixed costs
Depreciation—Mach. ………..
$ 250,000
250,000
250,000
Utilities ………………………….
150,000
150,000
150,000
Plant mgmt. salaries ………
140,000
140,000
140,000
Sales salary. ………………….
160,000
160,000
160,000
Advertising expense ………
81,000
81,000
81,000
Salaries …………………………
241,000
241,000
241,000
Entertainment expense ….
90,000
90,000
90,000
Total fixed costs…………….
$1,112,000
1,112,000
1,112,000
Income from operations ……..
$ 1,300
$ 372,400
Problem 21-1B (Continued)
Part 3
Operating income increase for a 20,000 to 28,000 unit sales increase
Potential sales (units) …………………………..…………………………
28,000
Units
Contribution margin per unit ……………………………………………
x $61.85
Total contribution margin …………………………………………..……
$1,731,800
Less: Fixed costs ……………………………………………………....
(1,112,000)
Potential operating income ………………………………………..……
$ 619,800
vs. Budgeted income for 2015 …………………………………………
125,000
Potential increase in income ……………………………………………
$ 494,800*
*Alternate solution format
Unit increase ………………………………………………………………..…
8,000
Units
Contribution margin per unit ………………………………………….…
x $61.85
Increase in contribution margin ……………………………………..…
$494,800
Since there is no increase in fixed costs, the expected increase in operating
income is the same $494,800.
Part 4
Operating income (loss) at 14,000 units
Potential sales (units) …………………………..…………………………
14,000
Contribution margin per unit ……………………………………………
x $61.85
Total contribution margin …………………………………………..……
$ 865,900
Less: Fixed costs ……………………………………………………....
(1,112,000)
Potential operating loss ……………………………………………..……
$ (246,100)