Solutions Manual, Appendix 11A 67
Problem 11A-11 (continued)
3. Variable overhead variances:
Actual DLHs of
Input, at the
Actual Rate
Actual DLHs of
Input, at the
Standard Rate
Standard DLHs
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
$29,580
5,800 DLHs
× $5.00 per DLH
6,000 DLHs
× $5.00 per DLH
= $29,000
= $30,000
Rate Variance,
$580 U
Efficiency Variance,
$1,000 F
Spending Variance,
$420 F
Alternative solution for the variable overhead variances:
Fixed overhead variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead
Applied to
Work in Process
$60,400
$59,000
6,000 DLHs
× $11.80 per DLH
= $70,800
Budget Variance,
$1,400 U
Volume Variance,
$11,800 F
Problem 11A-11 (continued)
Alternative approach to the budget variance:
Budget Actual fixed Budgeted fixed
= –
variance overhead overhead
= $60,400 – $59,000
= $1,400 U
Alternative approach to the volume variance:
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Fixed portion of Standard
Volume Denominator
= the predetermined – hours
Variance hours
overhead rate allowed
= $11.80 per DLH (5,000 DLHs – 6,000 DLHs)
= $11,800 F
4. The choice of a denominator activity level affects standard unit costs in
rises.
The volume variance cannot be controlled by controlling spending. The
volume variance simply reflects whether actual activity was greater than
Solutions Manual, Appendix 11A 69
Problem 11A–12 (45 minutes)
1.
and 2.
Per Direct Labor-Hour
Variable
Fixed
Total
Denominator of 30,000 DLHs:
$135,000 ÷ 30,000 DLHs ……………..
$4.50
$ 4.50
$270,000 ÷ 30,000 DLHs ……………..
$9.00
9.00
Total predetermined rate ………………..
$13.50
Denominator of 40,000 DLHs:
$180,000 ÷ 40,000 DLHs ……………..
$4.50
$ 4.50
$270,000 ÷ 40,000 DLHs ……………..
$6.75
6.75
Total predetermined rate ………………..
$11.25
3.
Denominator Activity:
30,000 DLHs
Denominator Activity:
40,000 DLHs
Direct materials, 4 feet ×
$8.75 per foot ……………
$35.00
Same ………………………
$35.00
Direct labor, 2 DLHs ×
$15 per DLH ……………..
30.00
Same ………………………
30.00
Variable overhead, 2
DLHs × $4.50 per DLH ..
9.00
Same ………………………
9.00
Fixed overhead, 2 DLHs ×
$9.00 per DLH …………..
18.00
Fixed overhead, 2 DLHs
× $6.75 per DLH ……..
13.50
Standard cost per unit …..
$92.00
Standard cost per unit ..
$87.50
b.
Manufacturing Overhead
Actual costs
446,400
Applied costs
486,000
*
Overapplied
overhead
39,600
70 Managerial Accounting for Managers, 4th Edition
Problem 11A-12 (continued)
c. Variable overhead variances:
Actual DLHs of
Input, at the
Actual Rate
Actual DLHs of
Input, at the
Standard Rate
Standard DLHs
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
$174,800
38,000 DLHs ×
$4.50 per DLH
36,000 DLHs ×
$4.50 per DLH
= $171,000
= $162,000
Rate Variance,
$3,800 U
Efficiency Variance,
$9,000 U
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
$271,600
$270,000*
36,000 DLHs × $9 per DLH
= $324,000
Budget Variance,
$1,600 U
Volume Variance,
$54,000 F
Problem 11A-12 (continued)
Alternative solution:
Budget variance:
Budget Actual fixed Budgeted fixed
= –
variance overhead overhead
= $271,600 – $270,000
= $1,600 U
Volume variance:
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Fixed portion of Standard
Volume Denominator
= the predetermined – hours
Variance hours
overhead rate allowed
= $9.00 per DLH (30,000 DLHs – 36,000 DLHs)
= $54,000 F
Summary of variances:
Variable overhead rate variance …………….
$ 3,800
U
Variable overhead efficiency variance ……..
9,000
U
Fixed overhead budget variance …………….
1,600
U
Fixed overhead volume variance ……………
54,000
F
Overapplied overhead …………………………
$39,600
F
72 Managerial Accounting for Managers, 4th Edition
Problem 11A–12 (continued)
5. The major disadvantage of using normal activity is the large volume
favorable volume variance that may be difficult for management to
interpret. In addition, the large favorable volume variance in this case
On the other hand, using long-run normal activity as the denominator