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Problem 8A-9A (continued)
Fixed overhead variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied to
Work in Process
$209,400
$210,000
32,000 hours ×
$6 per hour = $192,000
Budget Variance =
$600 F
Volume Variance =
$18,000 U
Alternative solution:
Budget variance:
Budget Actual fixed Budgeted fixed
= -
variance overhead overhead
= $209,400 - $210,000
= $600 F
Volume variance:
Fixed portion of Standard
Volume Denominator
= the predetermined - hours
Variance hours
overhead rate allowed
= $6.00 per hour (35,000 hours - 32,000 hours)
= $18,000 U
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Verification:
Variable overhead rate variance ........
$ 3,000
U
Variable overhead efficiency variance
5,000
F
Fixed overhead budget variance ........
600
F
Fixed overhead volume variance .......
18,000
U
Underapplied overhead ....................
$15,400
U
Problem 8A-9A (continued)
4. Variable overhead
Rate variance:
This variance includes both price and quantity elements.
The overhead spending variance reflects differences between actual and
standard prices for variable overhead items. It also reflects differences
between the amounts of variable overhead inputs that were actually
has the indirect effect of reducing variable overhead. Because 2,000
fewer labor-hours were required than indicated by the labor standards,
the indirect effect was presumably to reduce variable overhead spending
by about $5,000 ($2.50 per hour × 2,000 hours).
Fixed overhead
Problem 8A-10A (45 minutes)
1. Direct materials price and quantity variances:
Materials price variance = AQ (AP – SP)
2. Direct labor rate and efficiency variances:
Labor rate variance = AH (AR – SR)
3. a. Variable overhead spending and efficiency 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)
$108,000
43,500 DLHs
× $2.50 per DLH
42,000 DLHs
× $2.50 per DLH
= $108,750
= $105,000
Rate Variance =
$750 F
Efficiency Variance =
$3,750 U
Alternative solution:
Variable overhead rate variance = (AH × AR) – (AH × SR)
($108,000) – (43,500 DLHs × $2.50 per DLH) = $750 F
Variable overhead efficiency variance = SR (AH – SH)
$2.50 per DLH (43,500 DLHs – 42,000 DLHs) = $3,750 U
Problem 8A-10A (continued)
b. Fixed overhead budget and volume variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied to
Work in Process
$211,800
$210,000*
42,000 DLHs × $6 per DLH
= $252,000
Budget Variance =
$1,800 U
Volume Variance =
$42,000 F
*As originally budgeted. This figure can also be expressed as: 35,000
denominator DLHs × $6 per DLH = $210,000.
Alternative solution:
Budget variance:
Budget Actual fixed Budgeted fixed
= -
variance overhead overhead
= $211,800 - $210,000
= $1,800 U
Volume variance:
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Fixed portion of Standard
Volume Denominator
= the predetermined - hours
Variance hours
overhead rate allowed
= $6.00 per DLH (35,000 DLHs - 42,000 DLHs)
= $42,000 F
Problem 8A-10A (continued)
4. The total of the variances would be:
Direct materials variances:
Price variance .............................................
$ 6,400
U
Quantity variance ........................................
33,800
U
Direct labor variances:
Rate variance..............................................
8,700
F
Efficiency variance ......................................
24,000
U
Variable manufacturing overhead variances:
Rate variance..............................................
750
F
Efficiency variance ......................................
3,750
U
Fixed manufacturing overhead variances:
Budget variance ..........................................
1,800
U
Volume variance .........................................
42,000
F
Total of variances ..........................................
$18,300
U
are 6.7% and 3.6%, respectively, of the standard cost allowed and thus
would warrant investigation.
The company’s large unfavorable variances (for materials quantity and
labor efficiency) do not show up more clearly because they are offset by
Problem 8A-11A (30 minutes)
1.
Direct materials, 3 yards × $4.40 per yard .............................
$13.20
Direct labor, 1 DLH × $12.00 per DLH....................................
12.00
Variable manufacturing overhead, 1 DLH × $5.00 per DLH*....
5.00
Fixed manufacturing overhead, 1 DLH × $11.80 per DLH** ....
11.80
Standard cost per unit ..........................................................
$42.00
*
$25,000 ÷ 5,000 DLHs = $5.00 per DLH
**
$59,000 ÷ 5,000 DLHs = $11.80 per DLH
2. Materials variances:
Materials price variance = AQ (AP – SP)
24,000 yards ($4.80 per yard – $4.40 per yard) = $9,600 U
Problem 8A-11A (continued)
3. Variable overhead variances:
Actual DLHs of
Input, at the
Actual Rate
Actual DLHs of
Input, at the
Standard Rate
Standard DLHs
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
$29,580
5,800 DLHs
× $5.00 per DLH
6,000 DLHs
× $5.00 per DLH
= $29,000
= $30,000
Rate Variance =
$580 U
Efficiency Variance =
$1,000 F
Spending Variance = $420 F
Alternative solution for the variable overhead variances:
Variable overhead rate variance = (AH × AR) – (AH × SR)
($29,580) – (5,800 DLHs × $5.00 per DLH) = $580 U
Variable overhead efficiency variance = SR (AH – SH)
$5.00 per DLH (5,800 DLHs – 6,000 DLHs) = $1,000 F
Fixed overhead variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead
Applied to
Work in Process
$60,400
$59,000
6,000 DLHs
× $11.80 per DLH
= $70,800
Budget Variance =
$1,400 U
Volume Variance =
$11,800 F
Problem 8A-11A (continued)
Alternative approach to the budget variance:
Budget Actual fixed Budgeted fixed
= -
variance overhead overhead
= $1,400 U
Alternative approach to the volume variance:
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Fixed portion of Standard
Volume Denominator
= the predetermined - hours
Variance hours
overhead rate allowed
= $11.80 per DLH (5,000 DLHs - 6,000 DLHs)
= $11,800 F
4. The choice of a denominator activity level affects standard unit costs in
that the higher the denominator activity level chosen, the lower
Problem 8A-12A (45 minutes)
1.
and 2.
Per Direct Labor-Hour
Variable
Fixed
Total
Denominator of 30,000 DLHs:
$135,000 ÷ 30,000 DLHs .................
$4.50
$ 4.50
$270,000 ÷ 30,000 DLHs .................
$9.00
9.00
Total predetermined rate ....................
$13.50
Denominator of 40,000 DLHs:
$180,000 ÷ 40,000 DLHs .................
$4.50
$ 4.50
$270,000 ÷ 40,000 DLHs .................
$6.75
6.75
Total predetermined rate ....................
$11.25
3.
Denominator Activity:
30,000 DLHs
Denominator Activity:
40,000 DLHs
Direct materials, 4 feet ×
$8.75 per foot ...............
$35.00
Same ...........................
$35.00
Direct labor, 2 DLHs ×
$15 per DLH .................
30.00
Same ...........................
30.00
Variable overhead, 2
DLHs × $4.50 per DLH ..
9.00
Same ...........................
9.00
Fixed overhead, 2 DLHs ×
$9.00 per DLH ..............
18.00
Fixed overhead, 2 DLHs
× $6.75 per DLH ........
13.50
Standard cost per unit .....
$92.00
Standard cost per unit ..
$87.50
4. a. 18,000 units × 2 DLHs per unit = 36,000 standard DLHs
b.
Manufacturing Overhead
Actual costs
446,400
Applied costs
486,000
*
Overapplied
overhead
39,600
Problem 8A-12A (continued)
c. Variable overhead variances:
Actual DLHs of
Input, at the
Actual Rate
Actual DLHs of
Input, at the
Standard Rate
Standard DLHs
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
$174,800
38,000 DLHs ×
$4.50 per DLH
36,000 DLHs ×
$4.50 per DLH
= $171,000
= $162,000
Rate Variance =
$3,800 U
Efficiency Variance =
$9,000 U
Problem 8A-12A (continued)
Alternative solution:
Budget variance:
Budget Actual fixed Budgeted fixed
= -
variance overhead overhead
= $1,600 U
Volume variance:
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Fixed portion of Standard
Volume Denominator
= the predetermined - hours
Variance hours
overhead rate allowed
= $9.00 per DLH (30,000 DLHs - 36,000 DLHs)
= $54,000 F
Summary of variances:
Variable overhead rate variance ................
$ 3,800
U
Variable overhead efficiency variance ........
9,000
U
Fixed overhead budget variance ................
1,600
U
Fixed overhead volume variance ...............
54,000
F
Overapplied overhead ..............................
$39,600
F
Problem 8A-12A (continued)
5. The major disadvantage of using normal activity is the large volume
variance that ordinarily results. This occurs because the denominator
activity used to compute the predetermined overhead rate is different
from the activity level that is anticipated for the period. In the case at
hand, the company has used a long-run normal activity figure of 30,000
Appendix 8B
Journal Entries to Record Variances
Exercise 8B-1 (20 minutes)
1. The general ledger entry to record the purchase of materials for the
month is:
Raw Materials
(12,000 meters at $3.25 per meter) ..................
39,000
Materials Price Variance
(12,000 meters at $0.10 per meter F) .......
1,200
Accounts Payable
(12,000 meters at $3.15 per meter) ..........
37,800
2. The general ledger entry to record the use of materials for the month is:
Work in Process
(10,000 meters at $3.25 per meter) ..................
32,500
Materials Quantity Variance
(500 meters at $3.25 per meter U) ....................
1,625
Raw Materials
(10,500 meters at $3.25 per meter) ..........
34,125
3. The general ledger entry to record the incurrence of direct labor cost for
the month is:
Work in Process (2,000 hours at $12.00 per hour)
24,000
Labor Rate Variance
(1,975 hours at $0.20 per hour U) .....................
395
Labor Efficiency Variance
(25 hours at $12.00 per hour F)................
300
Wages Payable
(1,975 hours at $12.20 per hour) ..............
24,095
