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Solutions Manual, Appendix 11A 61
Problem 11A-9 (continued)
Fixed overhead variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied to
Work in Process
$209,400
$210,000
32,000 hours ×
$6 per hour = $192,000
Budget Variance,
$600 F
Volume Variance,
$18,000 U
Alternative solution:
Budget variance:
Budget Actual fixed Budgeted fixed
= -
variance overhead overhead
= $209,400 - $210,000
= $600 F
Volume variance:
Fixed portion of Standard
Volume Denominator
= the predetermined - hours
Variance hours
overhead rate allowed
= $6.00 per hour (35,000 hours - 32,000 hours)
= $18,000 U
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Verification:
Variable overhead rate variance ........
$ 3,000
U
Variable overhead efficiency variance
5,000
F
Fixed overhead budget variance ........
600
F
Fixed overhead volume variance .......
18,000
U
Underapplied overhead ....................
$15,400
U
62 Managerial Accounting for Managers, 4th Edition
Problem 11A-9 (continued)
4. Variable overhead
Rate variance:
This variance includes both price and quantity elements.
The overhead spending variance reflects differences between actual and
standard prices for variable overhead items. It also reflects differences
Efficiency variance:
The term “variable overhead efficiency variance” is a
misnomer, because the variance does not measure efficiency in the use
of overhead items. It measures the indirect effect on variable overhead
Fixed overhead
Budget variance:
This variance is simply the difference between the
Volume variance:
This variance occurs as a result of actual activity being
different from the denominator activity in the predetermined overhead
rate. In this case, the variance is unfavorable, so actual activity was less
Solutions Manual, Appendix 11A 63
Problem 11A-10 (45 minutes)
1. Direct materials price and quantity variances:
2. Direct labor rate and efficiency variances:
3. a. Variable overhead spending and efficiency 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)
$108,000
43,500 DLHs
× $2.50 per DLH
42,000 DLHs
× $2.50 per DLH
= $108,750
= $105,000
Rate Variance,
$750 F
Efficiency Variance,
$3,750 U
Alternative solution:
Variable overhead rate variance = (AH × AR) – (AH × SR)
Problem 11A-10 (continued)
b. Fixed overhead budget and volume variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied to
Work in Process
$211,800
$210,000*
42,000 DLHs × $6 per DLH
= $252,000
Budget Variance,
$1,800 U
Volume Variance,
$42,000 F
*As originally budgeted. This figure can also be expressed as: 35,000
Solutions Manual, Appendix 11A 65
Problem 11A-10 (continued)
4. The total of the variances would be:
Direct materials variances:
Price variance .............................................
$ 6,400
U
Quantity variance ........................................
33,800
U
Direct labor variances:
Rate variance..............................................
8,700
F
Efficiency variance ......................................
24,000
U
Variable manufacturing overhead variances:
Rate variance..............................................
750
F
Efficiency variance ......................................
3,750
U
Fixed manufacturing overhead variances:
Budget variance ..........................................
1,800
U
Volume variance .........................................
42,000
F
Total of variances ..........................................
$18,300
U
Note that the total of the variances agrees with the $18,300 variance
mentioned by the president.
The company’s large unfavorable variances (for materials quantity and
labor efficiency) do not show up more clearly because they are offset by
66 Managerial Accounting for Managers, 4th Edition
Problem 11A-11 (30 minutes)
1.
Direct materials, 3 yards × $4.40 per yard .............................
$13.20
Direct labor, 1 DLH × $12.00 per DLH....................................
12.00
Variable manufacturing overhead, 1 DLH × $5.00 per DLH*....
5.00
Fixed manufacturing overhead, 1 DLH × $11.80 per DLH** ....
11.80
Standard cost per unit ..........................................................
$42.00
*
$25,000 ÷ 5,000 DLHs = $5.00 per DLH.
**
$59,000 ÷ 5,000 DLHs = $11.80 per DLH.
2. Materials variances:
Materials price variance = AQ (AP – SP)
Labor variances:
Labor rate variance = AH (AR – SR)
