8-31
8-31 (30−40 min.) Graphs and overhead variances.
1. Variable Manufacturing Overhead Costs
Total
Variable
Manuf.
Overhead
Costs
$17,000,000
$8,500,000
Graph for planning
and control and inventory
costing
purposes at $10
per machine-hour
2. (a) Variable Manufacturing Overhead Variance Analysis for Best Around, Inc. for 2012
Actual Costs
Incurred
(1)
Actual Input Quantity
× Budgeted Rate
(2)
Allocated:
Budgeted Input
Quantity Allowed
for Actual Output
× Budgeted Rate
(4)
$12,075,000
(1,150,000 $10)
$11,500,000
(1,125,000 $10)
$11,250,000
$575,000 U
$250,000 U
8-33
3. The underallocated variable manufacturing overhead was $825,000 and overallocated
fixed overhead was $2,025,000. The flexible-budget variance and underallocated overhead are
4. The choice of the denominator level will affect inventory costs. The new fixed
manufacturing overhead rate would be $17,000,000 ÷ 1,360,000 = $12.50 per machine-hour. In
turn, the allocated amount of fixed manufacturing overhead and the production-volume variance
would change as seen below:
Actual
Budget
Allocated
$17,100,000
$17,000,000
1,125,000 × $12.50 =
$14,062,500
$100,000 U $2,937,500 U*
Flexible-budget variance Prodn. volume variance
$3,037,500 U
Total fixed overhead variance
*Alternate computation: (1,360,000 – 1,125,000) × $12.50 = $2,937,500 U
The major point of this requirement is that inventory costs (and, hence, income determination)
can be heavily affected by the choice of the denominator level used for setting the fixed
manufacturing overhead rate.
8-34
8-32 (30 min.) 4-variance analysis, find the unknowns.
Known figures denoted by an *
Case A:
Actual Costs
Incurred
Actual Input
Quantity
× Budgeted Rate
Flexible Budget:
Budgeted Input
Quantity Allowed
for Actual Output
× Budgeted Rate
Allocated:
Budgeted Input
Quantity Allowed
for Actual Output
× Budgeted Rate
Variable
Manufacturing
Overhead
$120,000*
(6,230 × $20)
$124,600
(6,200* × $20)
$124,000*
(6,200* × $20)
$124,000*
Fixed
Manufacturing
Overhead
$84,920*
(Lump sum)
$88,200*
(Lump sum)
$88,200*
(6,200* × $14a)
$86,800*
Total budgeted manufacturing overhead = $124,000 + $88,200 = $212,200
Case B:
Actual Costs
Incurred
Actual Input
Quantity
× Budgeted Rate
Flexible Budget:
Budgeted Input
Quantity
Allowed for
Actual Output
× Budgeted Rate
Allocated:
Budgeted Input
Quantity
Allowed for
Actual Output
× Budgeted Rate
Variable
Manufacturing
Overhead
$45,640
(1,141 $42.00*)
$47,922
(1,200 $42.00*)
$50,400b
(1,200 $42.00*)
$50,400
Never a variance
$600 U
Efficiency variance
$4,600* F
Spending variance
$1,400 U
Production-volume
variance
Never a variance
$3,280 F
Spending variance
Never a variance
$2,478 F*
Efficiency variance
$2,282 F*
Spending variance
8-35
Fixed
Manufacturing
Overhead
$23,180*
(Lump sum)
$20,000*
(Lump sum)
$20,000*
$24,000c
$4,000 F*
Production-volume
Never a variance
$3,180 U
Spending variance
8-33 (15−25 min.) Flexible budgets, 4-variance analysis.
1. Budgeted hours allowed
per unit of output = Budgeted DLH
Budgeted actual output
=
3,600,000
720,000
= 5 hours per unit
Budgeted DLH allowed for May output = 66,000 units 5 hrs./unit = 330,000 hrs.
Allocated total MOH = 330,000 Total MOH rate per hour
SOLUTION EXHIBIT 8-33
Variable Manufacturing Overhead
Actual Costs
Incurred
(1)
Actual Input
Quantity
× Budgeted Rate
(2)
Flexible Budget:
Budgeted Input
Quantity Allowed
for Actual Output
× Budgeted Rate
(3)
Allocated:
Budgeted Input
Quantity Allowed
for Actual Output
× Budgeted Rate
(4)
$186,000
(315,000 $0.59)
$185,850
(330,000 $0.59)
$194,700
(330,000 $0.59)
$194,700
$150 U
$8,850 F
8-38
8-34 (20 min.) Direct Manufacturing Labor and Variable Manufacturing
Overhead Variances
1. Direct Manufacturing Labor variance analysis for Sarah Beth’s Art Supply Company
Actual Costs
Incurred
Actual Input Quantity
Budgeted Rate
Flexible Budget:
Budgeted Input Quantity
Allowed for Actual Output
Budgeted Price
29,000 × 2.3 × 10.4
29,000 × 2.3 × 10
29,000 × 2 × 10.0
$693,680
$667,000
$580,000
$26,680 U $87,000 U
Price variance Efficiency variance
2. Variable Manufacturing Overhead variance analysis for Sarah Beth’s Art Supply Company
Actual Costs
Incurred
Actual Input Quantity
Budgeted Rate
Flexible Budget:
Budgeted Input Quantity
Allowed for Actual Output
Budgeted Rate
29,000 × 2.3 × 18.95
29,000 × 2.3 × 20.0
29,000 × 2 × 20.0
$1,263,965
$1,334,000
$1,160,000
$70,035 F $174,000 U
Spending variance Efficiency variance
3. The favorable spending variance for variable manufacturing overhead suggests that less costly
items were used, which could have a negative impact on labor efficiency. But note that the
4. If the variable overhead consisted only of costs that were related to direct manufacturing
labor, then Sarah is correct—both the labor efficiency variance and the variable overhead
8-39
8-35 (20 min.) Activity-based costing, batch-level variance analysis
1. Static budget number of crates = Budgeted pairs shipped / Budgeted pairs per crate
2. Flexible budget number of crates = Actual pairs shipped / Budgeted pairs per crate
3. Actual number of crates shipped = Actual pairs shipped / Actual pairs per box
4. Static budget number of hours = Static budget number of crates × budgeted hours per box
= 25,000 × 1.1 = 27,500 hours
5. Variable Direct Variance Analysis for Pointe’s Fleet Feet, Inc. for 2011
Actual Actual Hours Budgeted Hours Allowed for
6. Fixed Overhead Variance Analysis for Pointe’s Fleet Feet, Inc. for 2011
Actual Static Budget Budgeted Hours Allowed for
8-40
8-36 (30 min.) Activity-based costing, batch-level variance analysis
2. Flexible budget number of setups = Actual books produced / Budgeted books per setup
= 324,000 ÷ 500 = 648 setups
4. Static budget number of hours = Static budget # of setups × Budgeted hours per setup
5. Budgeted direct variable cost of a setup
= Budgeted variable cost per setup-hour × Budgeted number of setup-hours
= $40 × 8 = $320.
6. Direct Variable Variance Analysis for Jo Nathan Publishing Company for 2012
Actual Actual Hours Standard Hours