216 Chapter 7
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OH Budget for
One Month Period
OH
and 15,000
(Under-)
Charged
Units of Output
Overbudget
Indirect labor
$51,120
$52,500
$(1,380)
Supplies—oil
9,900
7,500
2,400
Allocated support dept.
VOH costs
9,600
7,500
2,100
Total VOH
$70,620
$67,500
$ 3,120
Supervision
$ 7,425
$ 6,750
$ 675
11,250
11,250
0
Other
3,750
3,750
0
Total FOH
$22,425
$21,750
$ 675
Total OH
$93,045
$89,250
OH budget variance
$ 3,795
The specific cause(s) of the variance needs to be determined before there can
be certainty that the proper department was charged. For example, if materi-
als were purchased at higher than standard prices because the manufacturing
department required a rush order, then the price variance is the responsibility
Even if the variances are properly charged to the two departments, it can be
argued that the purchasing department’s variance is influenced by the excess
quantity required by manufacturing. In this problem the extra 300 sq. ft. will
two departments.
c. The Manufacturing Department manager cannot control the price of the
overhead items. Therefore, the prices should not influence the data in her re-
port. Further, the allocation method for service department costs is not suffi-
indirect labor are left.
Control can be exercised at the departmental level over the amount of things
used; therefore, emphasis should be placed on the quantities within the vari-
Chapter 7 217
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To: Department Manager—Manufacturing
From: Performance Analysis
Subject: Controllable Overhead Performance—November
Controllable Overhead Items
% Compared
Quantity
to Standard
(1) Indirect labor*
Favorable indirect labor use
(dollar value $2,100)
300 hrs.
4%
(2) Oil*
Unfavorable oil use
(dollar value $1,500)
3,000 gal.
20%
Commentary:
The indirect labor variation, although favorable, should be investigated to be
sure that it does not represent unaccomplished activities that affect other as-
pects of the operations.
*Calculations for Memorandum
Indirect labor hours used
7,200
SHs for 15,000 units output (15,000 × 0.5 hrs.)
7,500
Favorable indirect labor usage
300 hrs.
Dollar value at standard prices ($7 per hour)
$2,100
Supplies—oil
Oil used
18,000 gal.
Standard quantity for 15,000 units output
15,000 gal.
Unfavorable oil usage
3,000 gal.
Dollar value at standard cost of $0.50 per gallon
$1,500
d. The immediate reaction might be to dismiss the department manager. However,
careful thought would require analysis of the situation to determine (1) if, on an
If it is assumed that the manager is performing satisfactorily on an overall ba-
sis and should not be dismissed, then two possible solutions can be consid-
218 Chapter 7
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(CMA adapted)
62. a. (1) Revising the standards immediately would facilitate their use in a master
budget. Use of revised standards would minimize production coordination
problems and facilitate cash planning. Revised standards would facilitate
(2) Standard costs are carried through the accounts in a standard cost system.
iances would be investigated.
b. (1) Changes in prime costs per unit due to the use of new direct material:
Changes due to direct material price
– $7.00) × 1 lb. = $0.77 U
Changes due to the effect of direct material quality on direct material usage
(Old material quantity – New material quantity) × Old material price
Changes due to the effect of direct material quality on direct labor usage
Total changes in prime costs per unit due to the use of new direct material
(2) Changes in prime costs per unit due to the new labor contract (New labor
rate – Old labor rate) × New labor time
Reduction of prime costs per unit
(CMA adapted)
Chapter 7 219
63. a.
Actual Variable
Conversion Costs
$1,128,800
Actual Machine Hrs ×
Standard Var. Rate
76,000 × $15 = $1,140,000
Standard Machine Hours ×
Standard Var. Rate
72,000 × $15 = $1,080,000
$11,200 F
$60,000 U
Variable Conversion
Spending Variance
Variable Conversion
Efficiency Variance
Actual Fixed
Conversion Costs
$374,500
Budgeted Fixed
Conversion Costs
$360,000
Standard Machine Hours ×
Standard Fixed Rate
72,000 × $5 = $360,000
$14,500 U
$0
Fixed Conversion
Spending Variance
Volume Variance
b.
Actual Machine
Hours
$1,503,300
Budget at Actual
Machine Hours
(76,000 × $15) +
$360,000 =
$1,500,000
Budget at
Standard Costs
(72,000 × $15) +
$360,000 =
$1,440,000
Applied Conversion
72,000 × $20 =
$1,440,000
$3,300 U
$60,000 U
$0
Spending Variance
Efficiency Variance
Volume Variance
$63,300 U
Total Conversion Cost Variance
64. a. 60,000 budgeted DLHs ÷ 3 DLHs per suit = 20,000 suits
d.
Actual Variable
Conversion Costs
$103,100
Actual DLHs ×
Standard Var. Rate
5,490 × $18 = $98,820
Standard DLHs
× Standard Var. Rate
5,400 × $18 = $97,200
$4,280 U
$1,620 U
Variable Conversion
Spending Variance
Variable Conversion
Efficiency Variance
$5,900 U
Total Variable Conversion Cost Variance
Actual Variable
Conversion Costs
$5,750
Budgeted Fixed
Conversion Cost
$72,000 ÷ 12 = $6,000
Standard DLHs
× Standard Var. Rate
5,400 × $1.20 = $6,480
$250 F
$480 F
Fixed Conversion
Spending Variance
Volume Variance
$730 F
Total Fixed Conversion Cost Variance
220 Chapter 7
Actual
Budget at Actual
DLHs
Budget at Standard
DLHs
Applied
$103,100
(5,490 × $18) = $ 98,820
(5,400 × $18) = $ 97,200
+ 5,750
+ 6,000
+ 6,000
5,400 × $19.20 =
$108,850
$104,820
$103,200
$103,680
$4,030 U
$1,620 U
$480 F
Spending Variance
Efficiency Variance
Volume Variance
$5,170 U
Total Conversion Cost Variance
65. a.
Standard Mix
Actual Mix
Onions
1/3
2/7
Olives
1/3
3/7
Mushrooms
1/3
2/7
Standard cost; actual quantity & mix
Onions (8,000 × $1.60)
$ 12,800
Olives (12,000 × $5.60)
67,200
Mushrooms (8,000 × $8.00)
64,000
$144,000
Standard cost & mix; actual quantity (rounded)
Onions (1/3 × 28,000 = 9,333 × $1.60)
$ 14,933
Olives (1/3 × 28,000 = 9,333 × $5.60)
52,265
Mushrooms (1/3 × 28,000 = 9,334 × $8.00)
74,672
$141,870
Standard cost, quantity, mix
Onions (1/3 × 27,000 × $1.60)
$ 14,400
Olives (1/3 × 27,000 × $5.60)
50,400
Mushrooms (1/3 × 27,000 × $8.00)
72,000
$136,800
AM × AQ × SP
SM × AQ × SP
SM × SQ × SP
$144,000
$141,870
$136,800
$2,130 U
$5,070 U
Material Mix Variance
Material Yield Variance
b.
Standard Mix
Actual Mix
Labor 1
5/11
13/23
Labor 2
6/11
10/23
Standard rate; actual mix & hours:
Category #1 (5,200 × $12)
$62,400
Category #2 (4,000 × $8)
32,000
$94,400
Chapter 7 221
Standard rate & mix; actual hours (rounded)
Category #1 (5/11 × 9,200 = 4,182 × $12)
$50,184
Category #2 (6/11 × 9,200 = 5,018 × $8)
40,144
$90,328
Standard rate, mix, hours
Category #1 = 5/11 × 8,800 × $12 =
$48,000
Category #2 = 6/11 × 8,800 × $8 =
38,400
$86,400
AM × AH × SR
SM × AH × SR
SM × SH × SR
$94,400
$90,328
$86,400
$4,072 U
$3,928 U
Labor Mix Variance
Labor Yield Variance
c. Work in Process Inventory
136,800
Material Mix Variance
2,130
Material Yield Variance
5,070
Raw Material—Onions
12,800
Raw Material—Olives
67,200
Raw Material—Mushrooms
64,000
To record the material mix and yield variances
Work in Process Inventory
86,400
Labor Mix Variance
4,072
Labor Yield Variance
3,928
Wages Payable
94,400
To record the labor mix and yield variances
66. a.
AM × AQ × SP
SM × AQ × SP
SM × SQ × SP
18,000 × $0.22
= $3,960
17,500 × $0.20
= $3,500
15,000 × $0.20
= $3,000
14,000 × $0.11
= 1,540
17,500 × $0.10
= 1,750
15,000 × $0.10
= 1,500
10,000 × $0.07
= 700
7,000 × $0.05
= 350
6,000 × $0.05
= 300
$6,200
$5,600
$4,800
$600 U
$800 U
Material Mix Variance
Material Yield Variance
Supporting calculations: Standard mix, actual quantity:
Wheat: 42,000 × (25 ÷ 60) = 17,500
222 Chapter 7
b.
AM × AH × SR
SM × AH × SR
SM × SH × SR
400 × $12.25 = $4,900
660 × 0.8 × $12 = $6,336
600 × 0.8 × $12 = $5,760
260 × $ 9.00 = 2,340
660 × 0.2 × $ 8 = 1,056
600 × 0.2 × $ 8 = 960
$7,240
$7,392
$6,720
$152 F
$672 U
Labor Mix Variance
Labor Yield Variance
Labor efficiency variance = $152 F + $672 U = $520 U