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PROBLEM 11-51 (CONTINUED)
VARIABLE-OVERHEAD SPENDING AND EFFICIENCY VARIANCES
(Hours = Direct-Labor Hours)
Actual
Hours
(AQ)
Actual
Rate
(AVR)
Actual
Hours
(AQ)
Standard
Rate
(SVR)
Standard
Rate
(SVR)
Standard
Rate
(SVR)
Standard
Allowed
Hours
(SQ)
Standard
Allowed
Hours
(SQ)
x
x
x
x
FLEXIBLE BUDGET:
VARIABLE OVERHEAD
ACTUAL VARIABLE
OVERHEAD
VARIABLE OVERHEAD
APPLIED TO
WORK-IN-PROCESS
(1)
(2)
(3)
(4)†
PROJECTED VARIABLE
OVERHEAD
Chapter 11 - Flexible Budgeting and Analysis of Overhead Costs
PROBLEM 11-51 (CONTINUED)
3. Graphical analysis of variable-overhead variances:*
Rate
$18.60
$18.00
(standard)
PROBLEM 11-51 (CONTINUED)
4.
Interpretation of variable-overhead variances:
(a)
The $1,260 unfavorable spending variance means that the company spent more
5.
FIXED-OVERHEAD BUDGET AND VOLUME VARIANCES
(Hours = Direct-Labor Hours)
(1)
ACTUAL
FIXED
OVERHEAD
(2)
BUDGETED
FIXED
OVERHEAD
(3)
FIXED OVERHEAD
APPLIED TO
WORK IN PROCESS
Standard
Standard
Fixed-
Allowed
Overhead
Chapter 11 - Flexible Budgeting and Analysis of Overhead Costs
PROBLEM 11-51 (CONTINUED)
6. Budgeted versus applied fixed overhead:
Fixed overhead
$20,000
$10,000
Chapter 11 - Flexible Budgeting and Analysis of Overhead Costs
PROBLEM 11-51 (CONTINUED)
7.
Interpretation of fixed-overhead variances:
(b)
The ($10,000) favorable (negative) volume variance is a means of reconciling the
control purpose and the product costing purpose of the cost accounting system.
8.
Journal entries:
To record February's actual production overhead.
(b)
Work-in-Process Inventory.........................................
86,000†
Chapter 11 - Flexible Budgeting and Analysis of Overhead Costs
PROBLEM 11-51 (CONTINUED)
9.
Posting of journal entries:
Production Overhead
Various Accounts
PROBLEM 11-52 (20 MINUTES)
1.
Sales price variance
=
(Actual sales price – budgeted sales price) actual sales volume
2.
Sales volume variance
PROBLEM 11-53 (45 MINUTES)
1. Sales-price variances and sales-volume variances:
Sales-Price
Variance
Actual
Sales
Price
Budgeted
Sales
Price
Price
Difference
Actual
Sales
Volume
Sales-
Price
Variance
Business ......................
$115
$120
$5
37,000
$185,000 U
2. The effectiveness of the marketing program is difficult to judge in the absence of
actual industry-wide performance data. If the industry estimate of a 10% decline in
the market for these products is used as a basis for comparison, then KCAC's gross
margin should have fallen to $1,980,000 ($2,200,000 x .9) as follows (in thousands):
Business
Residential
Total
PROBLEM 11-53 (CONTINUED)
KCAC's gross margin actually fell to $1,608,000, which is $372,000 lower than might
have been expected. To have been considered a success, the marketing program
should have generated a gross margin above $2,010,000 (the original budget minus
CASE 11-54 (50 MINUTES)
1.
Planned production = 5,000 units.
The reasoning is as follows:
(a)
Fixed-overhead rate per direct-labor hour
=
hours labor-direct planned
overhead fixed budgeted
2.
Actual production
=
planned production – 500 units
3.
Actual fixed overhead
=
$64,875.
4.
Total standard allowed direct-labor hours
CASE 11-54 (CONTINUED)
5.
Actual direct-labor rate
=
$22.50 per hour.
6.
Standard variable-overhead rate
=
$9 per direct-labor hour.
Variable-overhead efficiency variance
=
SVR(AQ – SQ)
7.
Actual variable-overhead rate
=
$9.45 per direct-labor hour.
8.
Standard direct-material quantity
per unit
=
units in production actual
allowed quatity material-direct standard total
9.
Direct-material price variance
=
AQ(AP – SP)
CASE 11-54 (CONTINUED)
10.
Applied fixed
overhead
=
standard fixed-overhead rate standard allowed hours
11.
Fixed-overhead
volume variance
=
budgeted fixed overhead – applied fixed overhead
CASE 11-55 (50 MINUTES)
1. New contribution report for February based on a flexible budget:
Flexible Budget* Actual Variance
______________________________________
Units (in pounds)……………….. 225,000 225,000 --
2. The total contribution margin on the flexible budget is $920,250. See requirement
(1). Alternatively, multiply the static budget contribution margin of $818,000 by
1.125 (225,000/200,000), as explained in the footnote to requirement (1) solution
above.
CASE 11-55 (CONTINUED)
3. The interpretation of the contribution margin on the flexible budget, $920,250, is as
4. The variance between the flexible budget contribution margin and the actual
a. Direct-material price variance:
Type of Material
AQ*(AP**
−
SP)
Variance
Cookie mix ...........................
2,325,000($.02 – $.02) ...........
$ 0
b. Direct-material quantity variance:
Type of Material
SP(AQ
−
SQ*)
Variance
Cookie mix ...........................
$.02(2,325,000 – 2,250,000) ..
$ 1,500 U
c. Direct-labor rate variance = AH(AR
−
SR) = 0.
CASE 11-55 (CONTINUED)
d. Direct-labor efficiency variance:
Type of Labor
SR*(AH
−
SH+)
Variance
Mixing ..................................
$.24(225,000 – 225,000) ........
$ 0
e. Variable-overhead spending variance
= actual variable overhead − (AQ SVR)
f. Variable-overhead efficiency variance
= SVR(AQ
−
SQ*)
g. Sales-price variance =
( )
actual budgeted actual
sales price sales price sales volume
−
Chapter 11 - Flexible Budgeting and Analysis of Overhead Costs
CASE 11-55 (CONTINUED)
Summary of variances:
Direct-material price variance ........................................................ $ 66,500 U
Direct-material quantity variance ................................................... 39,750 U
5. a. One problem may be that direct-labor hours is not an appropriate cost driver
for Colonial Cookies, Inc. because it may not be the activity that drives
Chapter 11 - Flexible Budgeting and Analysis of Overhead Costs
FOCUS ON ETHICS (See pages 472-473 in the text.)
In this situation, misstated standards are affecting the accuracy of accounting reports.
Cleverly is misusing the standard costing system at Shrood to manage its relationship
with the parent company, Gigantic. By overestimating direct-labor hours, too much
