Fixed
MOH
$18,000
$13,400
$13,400
$14,600
An overview of the four overhead variances is:
4-Variance
Analysis
Spending
Variance
Efficiency
Variance
Production–
Volume
Variance
Variable
Overhead
$200 U
$2,200 F
Never a variance
Fixed
Overhead
$4,600 U
Never a variance
$1,200 F
8-22 (20–30 min.) Straightforward 4-variance overhead analysis.
The Lopez Company uses standard costing in its manufacturing plant for auto parts. The standard
cost of a particular auto part, based on a denominator level of 4,000 output units per year, included
6 machine-hours of variable manufacturing overhead at $8 per hour and 6 machine-hours of fixed
manufacturing overhead at $15 per hour. Actual output produced was 4,400 units. Variable
manufacturing overhead incurred was $245,000. Fixed manufacturing overhead incurred was
$373,000. Actual machine-hours were 28,400.
Required:
1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead
variances, using the 4-variance analysis in Exhibit 8-4 (page 304).
2. Prepare journal entries using the 4-variance analysis.
3. Describe how individual fixed manufacturing overhead items are controlled from day to day.
4. Discuss possible causes of the fixed manufacturing overhead variances.
SOLUTION
1. The budget for fixed manufacturing overhead is 4,000 units × 6 machine-hours × $15
machine-hours/unit = $360,000.
An overview of the 4-variance analysis is:
4-Variance
Analysis
Spending
Variance
Efficiency
Variance
Production–
Volume Variance
$4,600 U
Spending variance
Never a variance
$1,200 F
Production-volume variance
$4,600 U
Flexible-budget variance
$1,200 F
Production-volume variance
$3,400 U
Underallocated fixed overhead
(Total fixed overhead variance)
Variable
Manufacturing
Overhead
$17,800 U
$16,000 U
Never a Variance
Fixed
Manufacturing
Overhead
$13,000 U
Never a Variance
$36,000 F
Solution Exhibit 8-22 has details of these variances.
A detailed comparison of actual and flexible budgeted amounts is:
Actual
Flexible Budget
Output units (auto parts)
4,400
4,400
Allocation base (machine-hours)
28,400
26,400a
Allocation base per output unit
6.45b
6.00
Variable MOH
$245,000
$211,200c
Variable MOH per hour
$8.63d
$8.00
Fixed MOH
$373,000
$360,000e
Fixed MOH per hour
$13.13f
–
a4,400 units × 6.00 machine-hours/unit = 26,400 machine-hours
b28,400 ÷ 4,400 = 6.45 machine-hours per unit
c 4,400 units × 6.00 machine-hours per unit × $8.00 per machine-hour = $211,200
d $245,000 ÷ 28,400 = $8.63
e 4,000 units × 6.00 machine-hours per unit × $15 per machine-hour = $360,000
f $373,000 ÷ 28,400 = $13.13
2. Variable Manufacturing Overhead Control 245,000
Accounts Payable Control and other accounts 245,000
Work-in-Process Control 211,200
Variable Manufacturing Overhead Allocated 211,200
Variable Manufacturing Overhead Allocated 211,200
Variable Manufacturing Overhead Spending Variance 17,800
Variable Manufacturing Overhead Efficiency Variance 16,000
Variable Manufacturing Overhead Control 245,000
Fixed Manufacturing Overhead Control 373,000
Wages Payable Control, Accumulated Depreciation
Control, etc. 373,000
Work-in-Process Control 396,000
Fixed Manufacturing Overhead Allocated 396,000
Actual Costs
Incurred
(1)
Same Budgeted
Lump Sum
(as in Static Budget)
Regardless of
Output Level
(2)
Flexible Budget:
Same Budgeted
Lump Sum
(as in Static Budget)
Regardless of
Output Level
(3)
Allocated:
Budgeted Input
Allowed for
Actual Output
× Budgeted Rate
(4)
Fixed
MOH
$373,000
(4,000 × 6 × $15)
$360,000
(4,000 × 6 × $15)
$360,000
(4,400 × 6 × $15)
$396,000
$13,000 U
Spending variance
Never a variance
$36,000 F
Production-volume
variance
$13,000 U
Flexible-budget variance
$36,000 F
Production-volume
variance
$23,000 F
Overallocated fixed overhead
(Total fixed overhead variance)
