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1. A static budget is for a particular level of activity. A flexible budget is one that can be established
for any level of activity.
2. For performance reporting, it is necessary to compare the actual costs for the actual level of
activity with the budgeted costs for the actual level of activity. A flexible budget provides the
means to compute the budgeted costs for the actual level of activity, after the fact.
5. An after-the-fact flexible budget facilitates performance evaluation by allowing the calculation of
what spending should have been for the actual level of activity.
6. Part of a variable overhead spending variance can be caused by inefficient use of overhead
resources.
10. The volume variance occurs when the actual volume differs from the expected volume used to
compute the predetermined standard fixed overhead rate. An unfavorable volume variance
occurs when the actual volume is less than the expected volume. Thus, an unfavorable volume
variance means that actual production is less than expected.
DISCUSSION QUESTIONS
11 FLEXIBLE BUDGET AND
OVERHEAD ANALYSIS
11-1
CHAPTER 11 Flexible Budget and Overhead Analysis
12. The spending variance. This variance is computed by comparing actual expenditures with
budgeted expenditures. The volume variance simply tells whether the actual volume is different
from the expected volume.
13. An activity-based budget requires three steps: (1) identification of activities, (2) estimation of
activity output demands, and (3) estimation of the costs of resources needed to provide the
activity output demanded.
11-2
CHAPTER 11 Flexible Budget and Overhead Analysis
11-1. c
11-2. a
11-8. a
11-9. d
11-10. d
11-11. a
11-12. c
MULTIPLE-CHOICE QUESTIONS
11-3
CHAPTER 11 Flexible Budget and Overhead Analysis
CE 11-19
1.
Direct materials ($0.60 × 3 × 4,000)……………………
…
$ 7,200
2.
A
ctual Budgeted
V
ariance*
Units produced………………………
…
3,800 4,000 200 U
Direct materials………………………
…
$ 6,800 $ 7,200 $ (400) F
CE 11-20
2,500 units 3,000 units 3,500 units
Direct materials………………………
…
$ 4,500 $ 5,400 $ 6,300
Budgeted for 4,000 units
Performance Report
CORNERSTONE EXERCISES
11-4
CHAPTER 11 Flexible Budget and Overhead Analysis
CE 11-21
Actual Budgeted Variance*
Units produced………………
…
3,800 3,800
—
Direct materials………………
…
$ 6,800 $ 6,840 $ (40) F
CE 11-22
1. Actual Variable Overhead Rate
(AVOR)
3. Actual variable overhead……………………
…
$206,816
Applied variable overhead……………………
…
207,200
Total variable overhead variance……………
…
$ (384) F
Note: The total variable overhead variance can also be calculated using
Performance Report
Actual Variable Overhead
Actual Direct Labor Hours
=
11-5
CHAPTER 11 Flexible Budget and Overhead Analysis
CE 11-23
1. Columnar approach:
2.
V
ariable Overhead Spending Variance = (AVOR – SVOR) AH
= ($3.68 – $3.70)56,200
= $(1,124) F
CE 11-24
Cost Actual Actual
Formula Cost Hours
Inspection
…
$2.00 $112,300 $112,400 $(100) F $112,000 $400 U
CE 11-25
1. Standard Hrs for Actual Units = SH per Unit × Actual Units Produced
= 4 × 14,000
= 56,000
1. AH × AVOR 2. AH × SVOR
Cost Item
Overhead
3. SH × SVOR
Spending
V
ariance
Budget for
Budget for
V
ariance
EfficiencyAt Standard
Hours
11-6
CHAPTER 11 Flexible Budget and Overhead Analysis
CE 11-26
1. Columnar approach:
1. AH × AFOR
CE 11-27
Salaries (6 inspectors × $32,000)………………
…
$192,000
CE 11-28
40,000 units 60,000 units
Fixed
V
ariable 60,000 mhrs 90,000 mhrs
Maintenance…
…
$50,000 $1.80 $158,000 $212,000
Machining……
…
25,000 3.00 205,000 295,000
56,200 × $5.03
$282,686
Spending
56,200 × $5.00
Efficiency
$281,000
$1,686 U
2. AH × SFOR 3. SH × SFOR
$1,000 U
$280,000
56,000 × $5.00
11-7
CHAPTER 11 Flexible Budget and Overhead Analysis
CE 11-29
A
ctual Budgeted
V
ariance*
Units produced………………
…
40,000 40,000 —
Maintenance…………………
…
$158,300 $158,000 $ 300 U
Performance Report
11-8
CHAPTER 11 Flexible Budget and Overhead Analysis
E 11-30
1.
A
ctual Budgeted
V
ariance
Units produced…………
…
4,100 4,200 (100) U
E 11-31
1.
Cost Formula 3,500 units 4,000 units 4,500 units
Direct materials…………
…
$14.00 $ 49,000 $ 56,000 $ 63,000
2. Unit cost at 3,500 units = $156,600/3,500 = $44.74
Unit cost at 4,000 units = $178,000/4,000 = $44.50
Performance Report
Flexible Budget for
EXERCISES
CHAPTER 11 Flexible Budget and Overhead Analysis
E 11-32
1.
V
ariable costs: $ 18,000
Maintenance…………………………………
…
40,500
Power…………………………………………
…
189,000
2. Direct Labor Hours for 15% Higher Production = 90,000 + 0.15(90,000)
= 103,500
Direct Labor Hours for 15% Lower Production = 90,000 – 0.15(90,000)
= 76,500
Formula
V
ariable costs:
Maintenance……………
…
$0.20 $ 15,300
Power……………………… 0.45 34,425
$ 20,700
46,575
Palladium Inc.
Overhead Budget
For the Coming Year
Formula
Activity Level
90,000 Hours
$0.20
0.45
2.10
103,500 Hours 76,500 Hours
A
ctivity Level
CHAPTER 11 Flexible Budget and Overhead Analysis
E 11-33
Direct labor hours
based on actual……
…
Variable overhead:
Maintenance………
…
U
E 11-34
1. Standard direct labor hrs required:
= Actual Deliveries × Standard Direct Labor Hours
= 38,600 × 0.80
= 30,880 direct labor hours
2.
V
ariable overhead analysis:
E 11-35
= $400,000/32,000 DLH
= $12.50
2. Fixed overhead analysis:
Budgeted Fixed Overhead
Practical Capacity
=Standard Fixed Overhead Rate (SFOR)
Actual Budgeted
93,000
$104,600
93,000
$107,000
1.
Performance Report
Variance
—
$2,400
11-11
CHAPTER 11 Flexible Budget and Overhead Analysis
E 11-36
1.
V
ariable overhead analysis:
2. Fixed overhead analysis:
E 11-37
1. Fixed Overhead Rate = $832,500/450,000* = $1.85 per DLH
2. Fixed overhead analysis:
3.
V
ariable OH Rate = ($1,777,500 – $832,500)/450,000 hours
= $2.10 per DLH
4. Variable overhead analysis:
Spending Efficiency
Actual FOH
Actual VOH Budgeted VOH
Budgeted FOH
Applied FOH
Actual FOH Budgeted FOH
Applied VOH
Actual VOH Budgeted VOH
Applied VOH
Applied FOH
11-12
CHAPTER 11 Flexible Budget and Overhead Analysis
E 11-38
1. Total Applied Fixed Overhead = (Standard Hours per Unit × Actual Units) × SFOR
= (0.9 × 143,000) × $11 = $1,415,700
4. Total Applied = (Standard Hours per Unit × Actual Units) × SVOR
Variable Overhead
= (0.9 × 143,000) × $6.36 = $818,532
CHAPTER 11 Flexible Budget and Overhead Analysis
E 11-39
Actual Actual Spending Efficiency
Cost Hours
b
V
ariancec
V
ariancee
Labor………
…
$24.00 $36,000 $35,760 $240 U $(240) F
E 11-40
1. Salaries (6 workers × $27,000)…………………………………………………
…
Supplies (130,000 × $0.80)………………………………………………………
…
E 11-41
Fixed Variable
Engineering…………………………
…
$67,000 $5.50
Performance Report
For the Year Ended December 31
Cost
Budget for Budget for
Standard
Cost Formulaa
$36,000
Hoursd
50,000 units
750 eng. hrs.
$ 71,125
$ 69,750
500 eng. hrs.
40,000 units
A
nker Company
$162,000
104,000
Required for
11-14
CHAPTER 11 Flexible Budget and Overhead Analysis
E 11-42
A
ctual Budgeted
V
ariance
Maintenance………………………
…
$179,600 $176,700 $2,900 U
Performance Report
11-15
CHAPTER 11 Flexible Budget and Overhead Analysis
P 11-43
1. Direct Labor Hours = (80,000 bags × 0.20 hours) +
(80,000 bags × 0.30 hours)
2.
Formula
V
ariable costs:
Maintenance………………………
…
$0.50 $20,000
Power………………………………
…
0.40 16,000
PROBLEMS
40,000 Hours*
Activity Level
Healthy Pet Company
Overhead Budget
For the Coming Year
CHAPTER 11 Flexible Budget and Overhead Analysis
P 11-44
1. Direct Labor Hours for 10% Higher = 40,000 hours + (0.10 × 40,000 hours)
2. 10% higher:
Formula
V
ariable costs:
Maintenance………………………
…
$0.50 $22,000
Power………………………………
…
0.40 17,600
20% lower:
Formula
V
ariable costs:
Maintenance………………………
…
$0.50 $16,000
44,000 Hours*
Healthy Pet Company
Overhead Budget
For the Coming Year
A
ctivity Level
Healthy Pet Compan
y
Overhead Budget
For the Coming Year
A
ctivity Level
32,000 Hours*
11-17
CHAPTER 11 Flexible Budget and Overhead Analysis
P 11-45
2.
A
ctual Budgeted*
V
ariance
Units produced………………………… 190,000 190,000 0
Production unit:
Maintenance………………………
…
$ 81,300 $ 80,750 $ 550 U
3. All of the variances are small (less than 2% of budgeted amounts). Most would
probably view the variances as immaterial. Reasons for variances are numerous.
Healthy Pet Compan
y
Performance Report
For the Current Year
11-18
CHAPTER 11 Flexible Budget and Overhead Analysis
P 11-46
1. Car W23 = 12/60(30,000) = 6,000 direct labor hours
2.
A
ctivity Level
Formula 30,000 Hours*
Variable costs:
Maintenance……………………
…
$3.80 $114,000
Supplies…………………………
…
4.25 127,500
P 11-47
1.
V
ariable*
Acquisition………………………
…
$600
Freight……………………………
…
60
2. Most Likely Optimistic
Sales (@ $760)…………………
…
$114,000,000 $190,000,000
Spelzig Company
Overhead Budget
For the Month of November
Fixed
$54,720,000
Pessimistic
11-19
