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CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–3A (FIN MAN); Prob. 7–3A (MAN) (Concluded)
Actual costs 30,300 Applied costs 30,100
($16,800 + $13,500) [4,300 × ($4.00 + $3.00)]
Balance (underapplied) 200
Alternative Computation of Overhead Variances
Factory Overhead
22-41
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–4A (FIN MAN); Prob. 7–4A (MAN)
Normal capacity for the month 8,400 hrs.
Actual production for the month 8,860 hrs.
Budget Actual Favorable Unfavorable
Variable costs:1
Indirect factory wages $ 31,896 $ 32,400 $ 504
Fixed costs:
Supervisory salaries $ 20,000 $ 20,000
Depreciation of plant and
equipment 36,200 36,200
Insurance and property taxes 15,200 15,200
1The budgeted variable costs are determined by multiplying the 8,860 actual hours
by the variable overhead rate (the May budget divided by 8,400 hours for each
variable overhead cost). Thus,
TIGER EQUIPMENT INC.
Factory Overhead Cost Variance Report—Welding Department
For the Month Ended May 31, 2014
Variances
22-42
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–4A (FIN MAN); Prob. 7–4A (MAN) (Concluded)
Actual costs 143,050 Applied costs* 146,190
[8,860 × ($8.00 + $8.50)]
Balance (overapplied) 3,140
Alternative Computation of Overhead Variances
Factory Overhead
22-43
1. Actual hours provided (5 × 40 hrs.)………………………………………………
…
200
2. Actual hours provided (5 × 40 hrs.)………………………………………………
…
200
Standard hours required for the actual results*………………………………
…
226
3. Actual labor rate………………………………………………………………………
…
$40
Standard labor rate…………………………………………………………………
…
32
4. The labor rate and time variances fail to consider the number of errors in the
code from programmer fatigue. A program that has many errors will require
5. Actual hours provided (6 × 40 hrs.)………………………………………………
…
240
6. Hiring an extra employee is less costly than the bonus by $320. The direct labor
cost variance for paying the bonus was $768 unfavorable, which is the sum of the
22-44
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–1B (FIN MAN); Prob. 7–1B (MAN)
a. Standard
Materials and
Labor Cost
per Unit
Direct materials ($5.00 × 5.0 yds.)………………………………………………
…
$25.00
b.
Price variance:
Quantity variance:
Total direct materials cost variance:
= (Actual Price – Standard Price) × Actual Quantity
Direct Materials Price Variance +
Direct Materials Quantity Variance
(Actual Quantity – Standard Quantity) × Standard Price
Direct Materials Cost Variance
Direct Materials
Price Variance
Direct Materials
Cost Variance =
Direct Materials
Quantity Variance
=
22-45
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–1B (FIN MAN); Prob. 7–1B (MAN) (Concluded)
c.
Rate variance:
Time variance:
Total direct labor cost variance:
Direct Labor Cost Variance
(Actual Direct Labor Hours – Standard Direct Labor Hours)
× Standard Rate per Hour
(Actual Rate per Hour – Standard Rate per Hour)
× Actual Hours
=
Direct Labor
Rate Variance
Direct Labor
Time Variance
=
Direct Labor
Cost Variance = Direct Labor Rate Variance + Direct Labor Time Variance
22-46
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–2B (FIN MAN); Prob. 7–2B (MAN)
1. a.
Direct Materials Variance
Price variance:
Actual price…………………………………
…
$ 1.90 $ 8.20
Standard price……………………………… 2.00 8.00
Quantity variance:
Actual quantity used………………………
…
48,000 85,100
Alternatively total direct materials cost variance:
Actual cost 2………………………………… $91,200 $697,820
Filler Liner Total
22-47
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–2B (FIN MAN); Prob. 7–2B (MAN) (Concluded)
1. b.
Direct Labor Variance
Rate variance:
Actual rate…………………………………
…
$ 14.10 $ 13.30
Time variance:
Actual time…………………………………
…
1,825 2,800
Alternatively, total direct labor cost variance:
Actual cost 2………………………………… $25,732.50 $37,240
2. The variance analyses should be based on the standard amounts at actual
volumes. The budget must flex with the volume changes. If the actual volume
Coats Coats Total
Women's Men's
22-48
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN)
a.
Price variance:
Quantity variance:
Total direct materials cost variance:
Direct Materials Cost Variance
= (Actual Price – Standard Price) × Actual Quantity
Direct Materials
Cost Variance =Direct Materials Price Variance +
Direct Materials Quantity Variance
Direct Materials
Quantity Variance =
(Actual Quantity – Standard Quantity) × Standard Price
Direct Materials
Price Variance
22-49
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN) (Continued)
b.
Rate variance:
Time variance:
Total direct labor cost variance:
= Direct Labor Rate Variance + Direct Labor Time Variance
Direct Labor
Cost Variance
Direct Labor Cost Variance
Direct Labor
Rate Variance
Direct Labor
Time Variance
=
(Actual Rate per Hour – Standard Rate per Hour)
× Actual Hours
=
(Actual Direct Labor Hours – Standard Direct Labor Hours)
× Standard Rate per Hour
22-50
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN) (Continued)
c.
Variable factory overhead controllable variance:
Actual variable factory overhead cost incurred……………………
…
$8,200
Fixed factory overhead volume variance:
Normal capacity at 100%………………………………………………
…
2,000 hrs.
Factory Overhead Cost Variance
22-51
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–3B (FIN MAN); Prob. 7–3B (MAN) (Concluded)
Actual costs 20,200 Applied costs 20,800
Alternative Computation of Overhead Variances
Factory Overhead
22-52
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–4B (FIN MAN); Prob. 7–4B (MAN)
Budget Actual Favorable Unfavorable
Variable costs:1
Indirect factory wages $235,125 $234,000 $(1,125)
Fixed costs:
Supervisory salaries $126,000 $126,000
Depreciation of plant and
Net controllable variance—favorable $ (1,450)
Volume variance—unfavorable:
1The budgeted variable costs are determined by multiplying 28,500 actual hours
by the variable overhead rate (the October budget divided by 30,000 hours for
each variable overhead cost). Thus,
FEELING BETTER MEDICAL INC.
Factory Overhead Cost Variance Report—Assembly Department
For the Month Ended October 31, 2014
Variances
22-53
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–4B (FIN MAN); Prob. 7–4B (MAN) (Concluded)
Actual costs 703,100 Applied costs* 692,550
Alternative Computation of Overhead Variances
Factory Overhead
22-54
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–5B (FIN MAN); Prob. 7–5B (MAN)
1. Actual hours provided (3 × 40 hrs.)………………………………………………
…
120
Standard hours required for the original plan*…………………………………
…
117
2. Actual hours provided (3 × 40 hrs.)………………………………………………
…
120
Standard hours required for the actual results*………………………………
…
127
3. Actual labor rate………………………………………………………………………
…
$30
Standard labor rate…………………………………………………………………
…
23
4. Actual hours provided (4 × 40 hrs.)………………………………………………
…
160
5. The bonus is the better approach by $80. The direct labor cost variance for
paying the bonus was $679 unfavorable which is the sum of the time variance
6. The labor rate and time variances fail to consider the number of errors in the
report from typist fatigue. A report that has many errors will require significant
22-55
