Exercise 11A-2 (continued)
3. Variable overhead rate variance:
Exercise 11A–3 (15 minutes)
1. The total overhead cost at the denominator level of activity must be
determined before the predetermined overhead rate can be computed.
Total fixed overhead cost per year …………………………...
$250,000
Total variable overhead cost
($2 per DLH × 40,000 DLHs) ………………………………..
80,000
Total overhead cost at the denominator level of activity ..
$330,000
Overhead at the denominator level of activity
Predetermined =
overhead rate Denominator level of activity
$330,000
= = $8.25 per DLH
40,000 DLHs
2.
Standard direct labor-hours allowed for
the actual output (a) ………………………
38,000
DLHs
Predetermined overhead rate (b) ………..
$8.25
per DLH
Overhead applied (a) × (b) ………………..
$313,500
Solutions Manual, Appendix 11A 53
Exercise 11A-4 (10 minutes)
Company A:
This company has a favorable volume variance because the
standard hours allowed for the actual production are greater
than the denominator hours.
Company B:
This company has an unfavorable volume variance because
the standard hours allowed for the actual production are less
than the denominator hours.
Company C:
This company has no volume variance because the standard
hours allowed for the actual production and the denominator
hours are the same.
54 Managerial Accounting for Managers, 4th Edition
Exercise 11A-5 (15 minutes)
Solutions Manual, Appendix 11A 55
2.
Direct materials, 2.5 yards × $8.60 per yard ………………….
$21.50
Direct labor, 3 DLHs* × $12.00 per DLH ……………………….
36.00
Variable manufacturing overhead, 3 DLHs × $1.90 per DLH
5.70
Fixed manufacturing overhead, 3 DLHs × $5.60 per DLH ….
16.80
Total standard cost per unit ……………………………………….
$80.00
*30,000 DLHs ÷ 10,000 units = 3 DLHs per unit.
Exercise 11A-7 (15 minutes)
2.
Actual fixed overhead incurred …………….
$267,000
Add: Favorable budget variance …………..
3,000
Budgeted fixed overhead cost ……………..
$270,000
$270,000
= 45,000 MHs
= $6 per MH
Budgeted fixed overhead
Fixed element of the =
predetermined overhead rate Denominator activity
3.
Fixed portion of Standard
Volume Denominator
= the predetermined – hours
Variance hours
overhead rate allowed
= $6 per MH (45,000 MHs – 42,000 MHs)
= $18,000 U
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Alternative solution to parts 1-3:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied
to Work in Process
$267,000*
$270,0001
42,000 MHs2 × $6 per MH3
= $252,000
Budget Variance,
$3,000 F*
Volume Variance,
$18,000 U
1$267,000 + $3,000 = $270,000.
214,000 units × 3 MHs per unit = 42,000 MHs
3$270,000 ÷ 45,000 denominator MHs = $6 per MH
*Given.
Solutions Manual, Appendix 11A 57
Direct labor: 1.5 DLHs at $12 per DLH ………………
Variable overhead: 1.5 DLHs at $2 per DLH ……….
Fixed overhead: 1.5 DLHs at $8 per DLH …………..
Standard cost per unit …………………………………..
b.
Manufacturing Overhead
Actual costs
606,500
Applied costs
630,000
*
Overapplied overhead
23,500
*63,000 standard DLHs × $10 per DLH = $630,000.
4. Variable overhead 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)
$123,500
65,000 DLHs ×
$2 per DLH
63,000 DLHs ×
$2 per DLH
= $130,000
= $126,000
Rate Variance,
$6,500 F
Efficiency Variance,
$4,000 U
Problem 11A-8 (continued)
Alternative solution:
Variable overhead rate variance = (AH × AR) – (AH × SR)
Fixed overhead variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead
Applied to Work in Process
$483,000
$480,000*
63,000 DLHs × $8 per DLH
= $504,000
Budget Variance,
$3,000 U
Volume Variance,
$24,000 F
Alternative solution:
Budget variance:
Budget Actual fixed Budgeted fixed
= –
variance overhead overhead
= $483,000 – $480,000
= $3,000 U
Volume variance:
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Fixed portion of Standard
Volume Denominator
= the predetermined – hours
Variance hours
overhead rate allowed
= $8 per DLH (60,000 DLHs – 63,000 DLHs)
= $24,000 F
Solutions Manual, Appendix 11A 59
Problem 11A-8 (continued)
The company’s overhead variances can be summarized as follows:
Variable overhead:
Rate variance …………………………...
$ 6,500
F
Efficiency variance……………………..
4,000
U
Fixed overhead:
Budget variance ………………………..
3,000
U
Volume variance ………………………..
24,000
F
Overapplied overhead—see part 3 …..
$23,500
F
DLHs (65,000 DLHs).
60 Managerial Accounting for Managers, 4th Edition
3. Variable overhead 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)
$78,000
30,000 hours ×
$2.50 per hour
32,000 hours ×
$2.50 per hour
= $75,000
= $80,000
Rate Variance,
$3,000 U
Efficiency Variance,
$5,000 F
Alternative solution: