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SOLUTION EXHIBIT 8-36
Variable Manufacturing Overhead
Actual Costs
Incurred
(1)
Actual Input Qty.
× Budgeted Rate
(2)
Flexible Budget:
Budgeted Input Qty.
Allowed for
Actual Output
× Budgeted Rate
(3)
Allocated:
Budgeted Input Qty.
Allowed for
Actual Output
× Budgeted Rate
(4)
(1,632 $44)
$71,808
(1,632 $42)
$68,544
(1,920 $42)
$80,640
(1,920 $42)
$80,640
Fixed Manufacturing Overhead
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 Qty.
Allowed for
Actual Output
× Budgeted Rate
(4)
8-37 Graphs and overhead variances. Best Around, Inc., is a manufacturer of vacuums and
uses standard costing. Manufacturing overhead (both variable and fixed) is allocated to products on
the basis of budgeted machine-hours. In 2017, budgeted fixed manufacturing overhead cost was
$17,000,000. Budgeted variable manufacturing overhead was $10 per machine-hour. The
denominator level was 1,000,000 machine-hours.
Required:
1. Prepare a graph for fixed manufacturing overhead. The graph should display how Best
Around, Inc.’s fixed manufacturing overhead costs will be depicted for the purposes of (a)
planning and control and (b) inventory costing.
2. Suppose that 1,125,000 machine-hours were allowed for actual output produced in 2017, but
1,200,000 actual machine-hours were used. Actual manufacturing overhead was
$12,075,000, variable, and $17,100,000, fixed. Compute (a) the variable manufacturing
overhead spending and efficiency variances and (b) the fixed manufacturing overhead
$3,264 U
Spending variance
$12,096 F
Efficiency variance
Never a variance
spending and production-volume variances. Use the columnar presentation illustrated in
Exhibit 8-4 (page 304).
3. What is the amount of the under- or overallocated variable manufacturing overhead and the
under- or overallocated fixed manufacturing overhead? Why are the flexible-budget variance
and the under- or overallocated overhead amount always the same for variable manufacturing
overhead but rarely the same for fixed manufacturing overhead?
4. Suppose the denominator level was 1,700,000 rather than 1,000,000 machine-hours. What
variances in requirement 2 would be affected? Recompute them.
SOLUTION
(3040 min.) Graphs and overhead variances.
1. Variable Manufacturing Overhead Costs
=
2. (a) Variable Manufacturing Overhead Variance Analysis for Best Around, Inc. for 2017
1,000,000
1,000,000
Machine-Hours
Actual Costs
Incurred
(1)
Actual Input Qty.
× Budgeted Rate
(2)
Flexible Budget:
Budgeted Input Qty.
Allowed for
Actual Output
× Budgeted Rate
(3)
Allocated:
Budgeted Input Qty.
Allowed for
Actual Output
× Budgeted Rate
(4)
(1,200,000 $10)
(1,125,000 $10)
(1,125,000 $10)
(b) Fixed Manufacturing Overhead Variance Analysis for Best Around, Inc. for 2017
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 Qty.
Allowed for
Actual Output
× Budgeted Rate
(4)
(1,125,000 × $17)
*Alternative computation: 1,125,000 budgeted hrs. allowed – 1,000,000 denominator hrs. = 125,000 hrs.
125,000 $17 = $2,125,000 F
$,825,000 U
Flexible-budget variance
Never a variance
Underallocated variable overhead
(Total variable overhead variance)
$100,000 U
$2,125,000 F*
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 ÷ 1,700,000 = $10.00 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
1,125,000 × $10.00 =
8-38 Overhead variance, missing information. Consider the following two situations—cases
A and B—independently. Data refer to operations for April 2017. For each situation, assume
standard costing. Also assume the use of a flexible budget for control of variable and fixed
manufacturing overhead based on machine-hours.
Cases
A B
(1) Fixed manufacturing overhead incurred $27,000 $132,900
(2) Variable manufacturing overhead incurred $10,511 —
(3) Denominator level in machine-hours — 45,000
(4) Standard machine-hours allowed for actual
output achieved
4,700 —
(5) Fixed manufacturing overhead (per standard
machine-hour)
— —
Flexible-Budget Data:
(6) Variable manufacturing overhead (per standard — $ 2.10
Cases
A B
machine-hour)
(7) Budgeted fixed manufacturing overhead $23,375 $130,500
(8) Budgeted variable manufacturing overheada— —
(9) Total budgeted manufacturing overheada— —
Additional Data:
(10) Standard variable manufacturing overhead
allocated
$10,340 —
(11) Standard fixed manufacturing overhead
allocated
$19,975 —
(12) Production-volume variance — $ 580 F
(13) Variable manufacturing overhead spending
variance
$ 457 U $ 1,490 F
(14) Variable manufacturing overhead efficiency
variance
— $ 1,680 F
(15) Fixed manufacturing overhead spending
variance
— —
(16) Actual machine-hours used — —
aFor standard machine-hours allowed for actual output produced.
Required:
Fill in the blanks under each case. [Hint: Prepare a worksheet similar to that in Exhibit 8-4 (page
304). Fill in the knowns and then solve for the unknowns.]
SOLUTION
(30 min.) Overhead variance, missing information.
Known figures denoted by an *
Case A:
Actual Costs
Incurred
Actual Input Qty.
× Budgeted Rate
Flexible Budget:
Budgeted Input
Qty.
Allowed for
Actual Output
× Budgeted Rate
Allocated:
Budgeted Input
Qty.
Allowed for
Actual Output
× Budgeted Rate
Variable
Manufacturing
(4,570 × $2.20)
(4,700* × $2.20)
(4,700* × $2.20)
Fixed
Manufacturing
(Lump sum)
(Lump sum)
(4,700* × $4.25)
Case B:
Actual Costs
Incurred
Actual Input Qty.
× Budgeted Rate
Flexible Budget:
Budgeted Input
Qty.
Allowed for
Actual Output
× Budgeted Rate
Allocated:
Budgeted Input Qty.
Allowed for
Actual Output
× Budgeted Rate
Never a variance
$286 F
Efficiency variance
$457 U*
Spending variance
Variable
Manufacturing
Overhead $91,750
(44,400 $2.10*)
$93,240
(45,200 $2.10*)
$94,920
(45,200 $2.10*)
$94,920
Fixed
Manufacturing
Overhead $132,900*
(Lump sum)
$130,500*
(Lump sum)
$130,500*
45,200 x $2.90
$131,080
Budgeted FMOH rate = Budgeted fixed manufacturing overhead
÷ Denominator level in machine-hours
Standard machine-hours allowed for actual output
8-39 Flexible budgets, 4-variance analysis. (CMA, adapted) Wilson Products uses standard
costing. It allocates manufacturing overhead (both variable and fixed) to products on the basis of
standard direct manufacturing labor-hours (DLH). Wilson Products develops its manufacturing
overhead rate from the current annual budget. The manufacturing overhead budget for 2017 is
based on budgeted output of 672,000 units, requiring 3,360,000 DLH. The company is able to
schedule production uniformly throughout the year.
A total of 72,000 output units requiring 321,000 DLH was produced during May 2017.
Manufacturing overhead (MOH) costs incurred for May amounted to $355,800. The actual costs,
compared with the annual budget and 1/12 of the annual budget, are as follows:
Never a variance
$1,680 F*
Efficiency variance
$1,490 F*
Spending variance
$580 F*
Production-volume
variance
Never a variance
$2,400 U
Spending variance
Annual Manufacturing Overhead Budget 2017
Total
Amount
Per
Output
Unit
Per DLH
Input
Unit
Monthly
MOH
Budget
May 2017
Actual
MOH
Costs for
May 2017
Variable MOH
Indirect
manufacturing labor
$1,008,000 $1.50 $0.30 $ 84,000 $
84,000
Supplies 672,000 1.00 0.20 56,000 117,000
Fixed MOH
Supervision 571,200 0.85 0.17 47,600 41,000
Utilities 369,600 0.55 0.11 30,800 55,000
Depreciation 705,6
00
1.05 0.21 58,8
00
88,
800
Total $3,326,400 $4.95 $0.99 $277,200 $355,80
0
Calculate the following amounts for Wilson Products for May 2017:
Required:
1. Total manufacturing overhead costs allocated
2. Variable manufacturing overhead spending variance
3. Fixed manufacturing overhead spending variance
4. Variable manufacturing overhead efficiency variance
5. Production-volume variance
Be sure to identify each variance as favorable (F) or unfavorable (U).
SOLUTION
(1525 min.) Flexible budgets, 4-variance analysis.
1. =
= = 3,360,000/672,000 = 5 hours per unit
2, 3, 4, 5. See Solution Exhibit 8-39
Variable manuf. overhead rate per DLH = $0.30 + $0.20 = $0.50
or,
An overview of the 4-variance analysis using the block format of the text is:
4-Variance
Analysis
Spending
Variance
Efficiency
Variance
Production-
Volume
Variance
Variable
Overhead
Fixed
Overhead
SOLUTION EXHIBIT 8-39
Variable Manufacturing Overhead
Actual Costs
Incurred
(1)
Actual Input Qty.
× Budgeted Rate
(2)
Flexible Budget:
Budgeted Input Qty.
Allowed for
Actual Output
× Budgeted Rate
(3)
Allocated:
Budgeted Input Qty.
Allowed for
Actual Output
× Budgeted Rate
(4)
$201,000
(321,000 $0.50)
$160,500
(360,000 $0.50)
$180,000
(360,000 $0.50)
$180,000
$40,500 U
Spending variance
$19,500 F
Efficiency variance
Never a variance
Fixed Manufacturing Overhead
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)
(360,000 $0.49)
