Case (continued)
2. The spending variances are computed as follows:
The Little Theatre
Spending Variances
For the Year Ended December 31
Actual
Results
Spending
Variances
Flexible
Budget
Number of productions (q1) ……..
7
7
Number of performances (q2) …..
168
168
Actors’ and directors’ wages
($2,000q2) ………………………….
$341,800
$5,800
U
$336,000
Stagehands’ wages ($300q2) …….
49,700
700
F
50,400
Ticket booth personnel and
ushers’ wages ($150q2) …………
25,900
700
U
25,200
Scenery, costumes, and props
($18,000q1) ………………………..
130,600
4,600
U
126,000
Theater hall rent ($500q2) ……….
78,000
6,000
F
84,000
Printed programs ($250q2) ……….
38,300
3,700
F
42,000
Publicity ($2,000q1) ………………..
15,100
1,100
U
14,000
Administrative expenses
($32,400 + $1,080q1 +$40q2) ..
47,500
820
U
46,680
Total expense ……………………….
$726,900
$2,620
U
$724,280
Case (continued)
3. The overall unfavorable spending variance is a very small percentage of
the total cost, less than 0.4%. This suggests that costs are under
control. In addition, the pattern of the variances may reflect good
4. Average costs may not be very good indicators of the additional costs of
any particular production or performance. The averages gloss over
considerable variations in costs. For example, a production of Peter
Rabbit may require only half a dozen actors and actresses and fairly
Chapter 8
Take Two Solutions
Exercise 8-1 (10 minutes)
Puget Sound Divers
Flexible Budget
For the Month Ended May 31
Actual diving-hours ……………………………….
110
Revenue ($365.00q) ……………………………..
$40,150
Expenses:
Wages and salaries ($8,000 + $125.00q) …
21,750
Supplies ($3.00q) ……………………………….
330
Equipment rental ($1,800 + $32.00q) …….
5,320
Insurance ($3,400) ……………………………..
3,400
Miscellaneous ($630 + $1.80q) ……………..
828
Total expense ………………………………………
31,628
Net operating income …………………………….
$ 8,522
Exercise 8-2 (15 minutes)
Quilcene Oysteria
Revenue and Spending Variances
For the Month Ended August 31
Actual
Results
Flexible
Budget
Revenue
and
Spending
Variances
Pounds …………………………………
8,000
8,000
Revenue ($4.00q) ……………………
$30,000
$32,000
$2,000
U
Expenses:
Packing supplies ($0.50q) ……….
4,200
4,000
200
U
Oyster bed maintenance
($3,200) …………………………..
3,100
3,200
100
F
Wages and salaries ($2,900 +
$0.30q) …………………………….
5,640
5,300
340
U
Shipping ($0.80q) …………………
6,950
6,400
550
U
Utilities ($830) ……………………..
810
830
20
F
Other ($450 + $0.05q) …………..
980
850
130
U
Total expense …………………………
21,680
20,580
1,100
U
Net operating income ………………
$8,320
$11,420
$3,100
U
Exercise 8-3 (15 minutes)
Alyeski Tours
Planning Budget
For the Month Ended July 31
Budgeted cruises (q1) ………………………………………………….
24
Budgeted passengers (q2) ……………………………………………
1,500
Revenue ($25.00q2) ……………………………………………………
$37,500
Expenses:
Vessel operating costs ($5,200 + $480.00q1 +$2.00q2) ……
19,720
Advertising ($1,700) …………………………………………………
1,700
Administrative costs ($4,300 + $24.00q1 +$1.00q2) ………..
6,376
Insurance ($2,900) …………………………………………………..
2,900
Total expense ……………………………………………………………
30,696
Net operating income ………………………………………………….
$ 6,804
Exercise 8-4 (20 minutes)
1.
Number of helmets …………………………………….
35,000
Standard kilograms of plastic per helmet …………
× 0.75
Total standard kilograms allowed …………………..
26,250
Standard cost per kilogram …………………………..
× $8
Total standard cost …………………………………….
$210,000
Actual cost incurred (given) ………………………….
$171,000
Total standard cost (above) ………………………….
210,000
Total material variance—favorable …………………
$ 39,000
2.
Actual Quantity
of Input, at
Actual Price
Actual Quantity of Input,
at Standard Price
Standard Quantity
Allowed for Output, at
Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
22,500 kilograms ×
26,250 kilograms* ×
$8 per kilogram
$8 per kilogram
$171,000
= $180,000
= $210,000
Price Variance =
$9,000 F
Quantity Variance =
$30,000 F
Spending Variance = $39,000 F
*35,000 helmets × 0.75 kilograms per helmet = 26,250 kilograms
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
22,500 kilograms ($7.60 per kilogram* – $8.00 per kilogram)
= $9,000 F
* $171,000 ÷ 22,500 kilograms = $7.60 per kilogram
Materials quantity variance = SP (AQ – SQ)
$8 per kilogram (22,500 kilograms – 26,250 kilograms)
= $30,000 F
Exercise 8-5 (20 minutes)
1.
Number of meals prepared ……………….
4,000
Standard direct labor-hours per meal ….
× 0.25
Total direct labor-hours allowed …………
1,000
Standard direct labor cost per hour …….
× $9.80
Total standard direct labor cost ………….
$9,800
Actual cost incurred …………………………
$9,600
Total standard direct labor cost (above)
9,800
Total direct labor variance ………………..
$ 200
Favorable
2.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
960 hours ×
$10.00 per hour
960 hours ×
$9.80 per hour
1,000 hours ×
$9.80 per hour
= $9,600
= $9,408
= $9,800
Rate Variance =
$192 U
Efficiency Variance =
$392 F
Spending Variance = $200 F
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH(AR – SR)
= 960 hours ($10.00 per hour – $9.80 per hour)
= $192 U
Labor efficiency variance = SR(AH – SH)
= $9.80 per hour (960 hours – 1,000 hours)
= $392 F
Exercise 8-7 (15 minutes)
Lavage Rapide
Planning Budget
For the Month Ended August 31
Budgeted cars washed (q) ………………………..
8,200
Revenue ($4.90q) …………………………………..
$40,180
Expenses:
Cleaning supplies ($0.80q) ……………………..
6,560
Electricity ($1,200 + $0.15q) ………………….
2,430
Maintenance ($0.20q)…………………………...
1,640
Wages and salaries ($5,000 + $0.30q) ……..
7,460
Depreciation ($6,000) …………………………...
6,000
Rent ($8,000) ……………………………………..
8,000
Administrative expenses ($4,000 + $0.10q) .
4,820
Total expense ………………………………………..
36,910
Net operating income ………………………………
$ 3,270
Appendix 8A
Predetermined Overhead Rates and
Overhead Analysis in a Standard Costing
System
Exercise 8A-1 (15 minutes)
1.
Fixed overhead
Fixed portion of the =
predetermined overhead rate Denominator level of activity
$250,000
= 25,000 DLHs
= $10.00 per DLH
2.
Budget Actual fixed Budgeted fixed
= –
variance overhead overhead
= $254,000 – $250,000
= $4,000 U
( )
Fixed portion of
Volume Denominator Standard hours
= the predetermined × –
variance hours allowed
overhead rate
= $10.00 per DLH × (25,000 DLHs – 26,000 DLHs)
= $10,000 F
Exercise 8A–2 (20 minutes)
1.
$3 per MH × 60,000 MHs + $300,000
Predetermined =
overhead rate 60,000 MHs
$480,000
= 60,000 MHs
= $8 per MH
Variable portion of $3 per MH × 60,000 MHs
the predetermined = 60,000 MHs
overhead rate
$180,000
= 60,000 MHs
= $3 per MH
Fixed portion of $300,000
the predetermined = 60,000 MHs
overhead rate
= $5 per MH
2. The standard hours per unit of product are:
Exercise 8A–2 (continued)
3. Variable overhead rate variance:
Variable overhead rate variance = (AH × AR) – (AH × SR)
($185,600) – (64,000 hours × $3 per hour) = $6,400 F
Variable overhead efficiency variance:
Variable overhead efficiency variance = SR (AH – SH)
= $15,000 F
Exercise 8A-3 (15 minutes)
1. The total overhead cost at the denominator level of activity must be
determined before the predetermined overhead rate can be computed.
Total fixed overhead cost per year …………………………...
$250,000
Total variable overhead cost
($2 per DLH × 40,000 DLHs) ………………………………..
80,000
Total overhead cost at the denominator level of activity ..
$330,000
$330,000
= = $8.25 per DLH
40,000 DLHs
2.
Standard direct labor-hours allowed for
the actual output (a) ………………………
38,000
DLHs
Predetermined overhead rate (b) ………..
$8.25
per DLH
Overhead applied (a) × (b) ………………..
$313,500
Exercise 8A–4 (10 minutes)
Company A:
This company has a favorable volume variance because the
standard hours allowed for the actual production are greater
than the denominator hours.
Company B:
This company has an unfavorable volume variance because
the standard hours allowed for the actual production are less
than the denominator hours.
Company C:
This company has no volume variance because the standard
hours allowed for the actual production and the denominator
hours are the same.
Exercise 8A–5 (15 minutes)
1. 9,500 units × 4 hours per unit = 38,000 hours.
2. and 3.
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied to
Work in Process
$198,700*
$200,000
38,000 hours × $5 per hour*
= $190,000
Budget Variance =
$1,300 F
Volume Variance =
$10,000 U*
*Given.
4.
$200,000
= Denominator activity
= $5 per hour
Budgeted fixed overhead
Fixed element of the =
predetermined overhead rate Denominator activity
Therefore, the denominator activity is: $200,000 ÷ $5 per hour =
40,000 hours.
Exercise 8A-6 (15 minutes)
1.
Total overhead at the
denominator activity
Predetermined =
overhead rate Denominator activity
$1.90 per DLH × 30,000 per DLH + $168,000
= 30,000 DLHs
$225,000
= 30,000 DLHs
= $7.50 per DLH
2.
Direct materials, 2.5 yards × $8.60 per yard ………………….
$21.50
Direct labor, 3 DLHs* × $12.00 per DLH ……………………….
36.00
Variable manufacturing overhead, 3 DLHs × $1.90 per DLH
5.70
Fixed manufacturing overhead, 3 DLHs × $5.60 per DLH ….
16.80
Total standard cost per unit …………………………..…………..
$80.00
*30,000 DLHs ÷ 10,000 units = 3 DLHs per unit
Exercise 8A–7 (15 minutes)
1. 14,000 units produced × 3 MHs per unit = 42,000 MHs
2.
Actual fixed overhead incurred …………….
$267,000
Add: Favorable budget variance …………..
3,000
Budgeted fixed overhead cost ……………..
$270,000
$270,000
= 45,000 MHs
= $6 per MH
Budgeted fixed overhead
Fixed element of the =
predetermined overhead rate Denominator activity
3.
Fixed portion of Standard
Volume Denominator
= the predetermined – hours
Variance hours
overhead rate allowed
= $6 per MH (45,000 MHs – 42,000 MHs)
= $18,000 U
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Alternative solution to parts 1-3:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied
to Work in Process
$267,000*
$270,0001
42,000 MHs2 × $6 per MH3
= $252,000
Budget Variance =
$3,000 F*
Volume Variance =
$18,000 U
1$267,000 + $3,000 = $270,000
214,000 units × 3 MHs per unit = 42,000 MHs
3$270,000 ÷ 45,000 denominator MHs = $6 per MH
*Given
Problem 8A-8A (45 minutes)
1.
$600,000
Total rate: = $10 per DLH
60,000 DLHs
$120,000
Variable rate: = $2 per DLH
60,000 DLHs
$480,000
Fixed rate: = $8 per DLH
60,000 DLHs
2.
Direct materials: 3 pounds at $7 per pound ……….
$21
Direct labor: 1.5 DLHs at $12 per DLH ………………
18
Variable overhead: 1.5 DLHs at $2 per DLH ……….
3
Fixed overhead: 1.5 DLHs at $8 per DLH …………..
12
Standard cost per unit …………………………………..
$54
3. a. 42,000 units × 1.5 DLHs per unit = 63,000 standard DLHs.
b.
Manufacturing Overhead
Actual costs
606,500
Applied costs
630,000
*
Overapplied overhead
23,500
*63,000 standard DLHs × $10 per DLH = $630,000
4. Variable overhead variances:
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
$123,500
65,000 DLHs ×
$2 per DLH
63,000 DLHs ×
$2 per DLH
= $130,000
= $126,000
Rate Variance =
$6,500 F
Efficiency Variance =
$4,000 U
Problem 8A-8A (continued)
Alternative solution:
Variable overhead rate variance = (AH × AR) – (AH × SR)
($123,500) – (65,000 DLHs × $2 per DLH) = $6,500 F
Variable overhead efficiency variance = SR (AH – SH)
= $24,000 F
Problem 8A–8A (continued)
The company’s overhead variances can be summarized as follows:
Variable overhead:
Rate variance …………………………...
$ 6,500
F
Efficiency variance ……………………..
4,000
U
Fixed overhead:
Budget variance ………………………..
3,000
U
Volume variance ………………………..
24,000
F
Overapplied overhead—see part 3 …..
$23,500
F
5. Only the volume variance would have changed. It would have been
Problem 8A–9A (45 minutes)
1.
$297,500
Total rate: = $8.50 per hour
35,000 hours
$87,500
Variable rate: = $2.50 per hour
35,000 hours
$210,000
Fixed rate: = $6.00 per hour
35,000 hours
2. 32,000 standard hours × $8.50 per hour = $272,000.
3. Variable overhead variances:
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
$78,000
30,000 hours ×
$2.50 per hour
32,000 hours ×
$2.50 per hour
= $75,000
= $80,000
Rate Variance =
$3,000 U
Efficiency Variance =
$5,000 F
Alternative solution:
Variable overhead rate variance = (AH × AR) – (AH × SR)
($78,000) – (30,000 hours × $2.50 per hour) = $3,000 U
Variable overhead efficiency variance = SR (AH – SH)
$2.50 per hour (30,000 hours – 32,000 hours) = $5,000 F