11–41
PROBLEM 11-45 (CONTINUED)
bTotal standard overhead rate
=
variable overhead rate + fixed overhead rate
cVariable-overhead spending variance
=
actual variable overhead – (actual direct-labor hours
standard variable overhead rate)
dVariable-overhead efficiency variance
=
SVR(AQ – SQ)
eFixed-overhead budget variance
=
actual fixed overhead – budgeted fixed overhead
=
$621,000 – $630,000
fFixed-overhead volume variance
=
budgeted fixed overhead – applied fixed overhead
gUnderapplied variable overhead
=
actual variable overhead – applied variable overhead
Chapter 11 – Flexible Budgeting and Analysis of Overhead Costs
PROBLEM 11-45 (CONTINUED)
hOverapplied fixed overhead
=
actual fixed overhead – applied fixed overhead
jApplied variable overhead
kApplied fixed overhead
11–43
PROBLEM 11-45 (CONTINUED)
Missing amounts for case B:
1.
$4.00a per direct-labor hour
2.
4.
5.
6.
7.
$6,400 underappliedg
$18,720 underappliedh
1,000 unitsi
800 unitsj
11–44
PROBLEM 11-45 (CONTINUED)
Explanatory notes for case B:
aTo find the standard variable overhead rate:
Variable-overhead efficiency variance
=
SVR(AQ – SQ)
=
=
bStandard fixed-overhead rate
=
total standard overhead rate – SVR
=
cFlexible budget for variable overhead
dFlexible budget for fixed overhead
=
applied fixed overhead + volume variance
positive)
=
$72,000
eActual variable overhead
=
applied variable overhead + spending variance + efficiency variance
=
$32,000
fActual fixed overhead
=
budgeted fixed overhead + fixed-overhead budget variance
=
$72,000 + $4,320 U
=
$76,320
Chapter 11 – Flexible Budgeting and Analysis of Overhead Costs
11–45
PROBLEM 11-45 (CONTINUED)
gUnderapplied variable overhead
=
spending variance + efficiency variance
=
$8,000 U* + $1,600 F*
=
$6,400 underapplied
*Note that the signs cancel when adding variances of different signs.
hUnderapplied fixed overhead
=
fixed-overhead budget variance + volume variance
=
$18,720 underapplied
jActual production
=
unit per hours labordirect standard
hours labordirect allowed standard
=
$25,600
11–46
PROBLEM 11-45 (CONTINUED)
lApplied fixed overhead
=
SQ standard fixed-overhead rate
=
$57,600
PROBLEM 11-46 (20 MINUTES)
The purchase of the FMS could have caused the following variances:
(a)
Favorable direct-material quantity variance, due to a decrease in material waste.
(g)
Fixed overhead volume variance:
Chapter 11 – Flexible Budgeting and Analysis of Overhead Costs
11–47
PROBLEM 11-47 (60 MINUTES)
1.
Standard machine hours per unit
=
=
=
5 hours per unit
2.
Actual cost of direct material per unit
=
units 6,200
$166,000 $540,000 +
=
$113.87 per unit (rounded)
=
$22 per machine hour
5.
Standard variable-overhead rate per machine hour
=
=
$20.20 per machine hour
6.
First, continue using the high-low method to determine total budgeted fixed overhead
as follows:
Total budgeted overhead at 30,000 machine hours …………………………….
$1,254,000
Total budgeted fixed overhead ………………………………………………………….
$ 648,000
Now, we can compute the standard fixed-overhead rate per machine hour, as follows:
11–48
=
$21.60 per machine hour
PROBLEM 11-47 (CONTINUED)
7.
First, compute actual variable overhead as follows:
Total actual overhead ……………………………………………………………………….
$1,266,000
Total fixed overhead (given) ………………………………………………………………
Total variable overhead …………………………………………………………………….
$ 618,000
=
=
$28,400 Favorable
8.
Variable-overhead efficiency variance
=
(AH SVR) – (SH SVR)
Unfavorable
9.
Fixed-overhead budget variance
=
$648,000 – $648,000 = 0
10.
Fixed-overhead volume variance
* Some accountants would designate a negative volume variance as “favorable.”
Chapter 11 – Flexible Budgeting and Analysis of Overhead Costs
11–49
PROBLEM 11-47 (CONTINUED)
11.
Flexible budget formula, using the high-low method of cost estimation:
Total budgeted cost at 30,000 machine hours …………………………………….
$2,928,000
Fixed overhead cost ………………………………………………………………………….
Thus, the flexible budget formula is as follows:
Total production cost
=
$76X + $648,000
where X = number of machine hours allowed.
Therefore, the total budgeted production cost for 6,050 units is:
Chapter 11 – Flexible Budgeting and Analysis of Overhead Costs
11–50
PROBLEM 11-48 (40 MINUTES)
1.
a.
Three weaknesses in Albuquerque Wood Crafts, Inc.’s monthly Bookcase
Production Performance Report are as follows:
• The report uses a single plant-wide rate to allocate fixed production costs.
Square footage may not drive the fixed production costs, and there may be a
• The report is based on a static budget. Management should use a flexible
budget that compares the same level of activity, calculating variances between
b.
Due to Sara McKinley’s remarks Steve Clark is likely to:
• Be frustrated and confused by the conflicting signals of the report and what is
• Feel tense and apprehensive. The timing of McKinley’s remarks, immediately
before the meeting, without an opportunity for discussion and feedback, will
2.
a.
To improve the monthly performance report, management should:
Chapter 11 – Flexible Budgeting and Analysis of Overhead Costs
11–51
PROBLEM 11-48 (CONTINUED)
A revised monthly performance report based on a flexible budget is as follows:
ALBUQUERQUE WOOD CRAFTS, INC.
BOOKCASE PRODUCTION PERFORMANCE REPORT FOR NOVEMBER
Actual
Flexible
Budget
Variance
Units ………………………………………………………………
3,000
3,000
Revenue …………………………………………………………
$483,000
$495,000a
$12,000 U
Variable production costs: ………………………………
Direct material ……………………………………………
$ 69,300
Direct labor ………………………………………………..
Machine time ……………………………………………..
Production overhead ………………………………….
Total variable costs …………………………………….
$304,800
Contribution margin ……………………………………….
$178,200
b.
Steve Clark should be more motivated by the revised report since it clearly shows that
11–52
PROBLEM 11-49 (35 MINUTES)
1. Calculation of variances:
Direct-material price variance
=
AQ(AP – SP)
*$2.20 = $33,000 15,000
Direct-material purchase
price variance
=
PQ(AP – SP)
The two versions of the direct-material price variance are equal because quantity
purchased equals quantity used.
Direct-material quantity variance
=
SP(AQ – SQ)
=
$2.00(15,000 – 14,500*)
=
$1,000 Unfavorable
*14,500 lbs. = 725 20 lbs. per unit
Direct-labor rate variance
=
AH(AR – SR)
=
$3,600 Unfavorable
*$18.90 = $75,600 4,000
Direct-labor efficiency variance
=
SR(AH – SH)
=
$18.00(4,000 – 3,625*)
=
$6,750 Unfavorable
*3,625 hours = 725 units 5 hours per unit
Chapter 11 – Flexible Budgeting and Analysis of Overhead Costs
PROBLEM 11-49 (CONTINUED)
Variable-overhead spending variance
=
actual variable overhead – (AQ SVR)
=
$500 Favorable
Variable-overhead efficiency variance
=
$562.50 Unfavorable
Fixed-overhead budget variance
=
actual fixed overhead – budgeted fixed overhead
=
$500 Unfavorable
=
11–54
PROBLEM 11-50 (30 MINUTES)
1.
Variances:
a.
Variable-overhead spending variance
=
Actual variable overhead – (AQ
SVR)
Unfavorable
b.
Variable-overhead efficiency variance
=
$21,000 Unfavorable
c.
Fixed-overhead budget variance
=
Actual fixed overhead – budgeted fixed overhead
=
$294,000 – $300,000* = $6,000 Favorable
*Budgeted fixed overhead
=
budgeted overhead – budgeted variable overhead
d.
Fixed-overhead volume variance
=
budgeted fixed overhead – applied fixed overhead
** Some accountants would designate a positive volume variance as “unfavorable.”
11–55
PROBLEM 11-50 (CONTINUED)
2.
Production Overhead …………………………………………………..
Various Accounts ………………………………………………..
To record actual production overhead.
Production Overhead …………………………………………..
To add production overhead to work in process.
per hour is the sum of the variable and fixed predetermined overhead rates.
Cost of Goods Sold ……………………………………………………..
Production Overhead …………………………………………..
To close underapplied overhead into Cost of Goods Sold.
PROBLEM 11–51 (60 MINUTES)
1.
Formula flexible overhead budget:
Total monthly overhead = $40,000 + $18X*
where X denotes activity measured in direct-labor hours
1,500 hours.