Exercise 21–14A (25 minutes)
1.
Work in Process Inventory ………………………………………………
288,000
Direct Materials Price Variance* ………………………………………
2,200
Direct Materials Quantity Variance …………………………..
24,000
Raw Materials Inventory ………………………………………….
266,200
Record direct materials price and quantity variances.
* This price variance can alternatively be recorded when the direct materials are purchased.
Direct Materials Quantity Variance …………………………..
Direct Materials Price Variance …………………………..
Cost of Goods Sold …………………………………………………
21,800
Exercise 21-15 (25 minutes)
Part 1
Direct materials price variance:
Actual cost of direct materials used (16,000 x $4.05) ………………………….
$ 64,800
Actual quantity used x Standard price (16,000 x $4.00) ………………………
64,000
Direct materials price variance ……………………………………………………….
$ 800
U
Direct materials quantity variance:
Actual quantity used x Standard price (16,000 x $4.00) ………………………
$ 64,000
Standard quantity x Standard price (15,000* x $4.00) ………………………….
60,000
Direct materials quantity variance ……………………………………………………..
$ 4,000
U
*30,000 units x ½ pound per unit = 15,000 pounds
Part 2
Direct labor rate variance:
Actual hours x Actual rate per hour (5,545 x $19.00***) ………………………
Actual hours x Standard rate per hour (5,545 x $20.00) ………………………
Direct labor rate variance ……………………………………………………….
F
Actual hours x Standard rate per hour (5,545 x $20.00) ………………………
Standard hours x Standard rate per hour (5,000** x $20.00) ………………..
Direct labor efficiency variance ……………………………………………………….
U
Exercise 21–16 (30 minutes)
1.
October variances
Preliminary computations
Actual hours: 16,250 hours (given)
Standard hours: 5,600 units x 3 hrs./unit = 16,800 hrs.
Actual rate: $247,000/16,250 hours = $15.20/hr.
Standard rate: $15.00/hr. (given)
Direct labor cost variances
Actual units at actual cost [16,250 hrs. @ $15.20] …………………………..
$247,000
Standard units and standard cost [16,800 hrs. @ $15.00] …………………………..
252,000
Direct labor cost variance …………………………………………………………………………
$ 5,000 F
Rate and efficiency variances
AH x SR
Standard Cost
SH x SR
16,250 x $15.00
16,800 x $15.00
hours per hour
hours per hour
hours per hour
$243,750
$252,000
Exercise 21–16 (Concluded)
November variances
Preliminary computations
Actual hours: 22,000 hours (given)
Standard hours: 6,000 units x 3 hrs./unit = 18,000 hours
Actual rate: $335,500/22,000 hrs. = $15.25/hr.
Standard rate: $15.00/hr. (given)
Direct labor cost variances
Actual units at actual cost [22,000 hrs. @ $15.25] …………………………..
$335,500
Standard units at standard cost [18,000 hrs. @ $15.00] …………………………..
270,000
Direct labor cost variance ……………………………………………………….
$ 65,500 U
2. The efficiency variance is more than 5% of actual direct labor cost
($60,000/$335,500 = 17.9%) and it will be investigated further.
For the instructor
The unfavorable labor rate variance in October means the actual rate for an hour of labor is
greater than budgeted. The favorable labor efficiency variance means the actual hours used
are less than budgeted. Together, these results can be interpreted to mean that employees
Exercise 21–17 (20 minutes)
1. Predetermined overhead rate computations
Expected volume …………………………………………………………….
75%
Expected total overhead ………………………………………………….
$2,100,000
Expected hours ………………………………………………………………
375,000 hrs.
Variable cost per hour ($1,500,000/ 375,000) …………………….
$4.00
Fixed cost per hour ($600,000/ 375,000) …………………………..
$1.60
Total cost per hour ($2,100,000/ 375,000) …………………………
$5.60
2. Variable overhead cost variance
Variable overhead cost incurred [given] …………………………..
$1,375,000
Variable overhead cost applied [350,000 hrs. @ $4.00] ………………………
Fixed overhead cost incurred [given] ……………………………………….
Fixed overhead cost applied [350,000 hrs. @ $1.60] ………………….
Fixed overhead cost variance ………………………………………………….
Exercise 21–18A (20 minutes)
1.
Variable overhead spending and efficiency variances
Interpretation:
The $15,000 unfavorable spending variance means the actual cost of variable
overhead is more than budgeted. This unfavorable variance can occur
because the cost of variable overhead is greater than budgeted or because
more variable items are consumed than anticipated. It could also be a
combination of both; where the cost and usage may be greater or less than
anticipated, yet the net impact is an unfavorable spending variance.
Exercise 21–18A (continued)
2.
Fixed overhead spending and volume variances
Actual Overhead
Budgeted Overhead
Applied Overhead
(Given)
350,000 x $1.60
hours per hour
$600,000
$560,000
3. The controllable variance is computed as:
Variable overhead spending variance ……………………………..
$15,000 U
Variable overhead efficiency variance ……………………………..
40,000 F
Fixed overhead spending variance ………………………………….
28,600 U
Controllable variance ………………………………………………………
$ 3,600 U
Exercise 21-19 (20 minutes)
1. Total overhead planned at 80% level (25,000 direct labor hours)
Budgeted
Cost
Ovhd.
Rate*
Fixed overhead…………………………...
$ 50,000
$ 2.00
Variable overhead ……………………….
275,000
11.00
Total overhead …………………………...
$325,000
$13.00
*Predetermined overhead rate = Budgeted cost/25,000 DLH
2. Total overhead variance
Total actual overhead (given) ……………………………………………………….
$305,000
Applied overhead ($13/hr. x 21,875 hours) …………………………..
284,375
Total overhead variance ……………………………………………………….
$ 20,625 U
Exercise 21–20 (30 minutes)
1. The overhead volume variance is computed as:
Budgeted fixed overhead (at predicted capacity) …………………………..
$50,000
Applied fixed overhead ($2/hr. x 21,875 hours) …………………………..
43,750
Overhead volume variance ……………………………………………………….
$ 6,250 U
2. Overhead controllable variance*
Total actual overhead (given)
$305,000
Budgeted overhead
Overhead controllable variance ……………………………………………………….
EX
Exercise 21-21 (25 minutes)
Preliminary calculations:
Variable overhead rate per DL hour = $48,000/24,000 = $2 per hour
Fixed overhead rate per DL hour = $44,400/24,000 = $1.85 per hour
Standard number of DL hours = 9,000 units x 3 = 27,000
Part 2
Total budgeted fixed overhead (given) ………………
Total fixed overhead applied ($1.85 x 27,000) ………
$44,400
49,950
Overhead controllable variance……………………….
$ 5,550 F
Exercise 21–21 (continued)
Part 3
JAMES CORP.
Overhead Variance Report
For Month Ended May 31
Flexible
Actual
Controllable Variance
Budget
Results
Variances*
Variable overhead costs
Indirect materials …………………………..
$16,875
$15,000
$1,875
F
Indirect labor ……………………………………..
27,000
26,500
500
F
Power ………………………………………………..
6,750
6,750
0
Maintenance ………………………………………
3,375
4,000
625
U
Total variable costs …………………………..
54,000
52,250
1,750
F
Fixed overhead costs
15,000
15,000
10,000
10,000
0
Supervisory salaries …………………………..
19,400
22,000
2,600
U
Total fixed costs…………………………..
44,400
47,000
2,600
U
Volume Variance
Exercise 21-22 (25 minutes)
Preliminary calculations:
Part 1
Total actual overhead (given) …………………………
$81,700
Budgeted overhead
Variable ($1 per hour x 36,000 hours) ………………….
$36,000
Fixed (given) ………………………………………………………
48,000
Total ……………………………………………………
84,000
Overhead controllable variance ………………………
$ 2,300 F
Total fixed overhead applied ($1.50 x 36,000) ………
54,000
Exercise 21–22 (continued)
Part 3
BLAZE CORP.
Overhead Variance Report
For Month Ended March 31
Flexible
Actual
Controllable Variance
Budget
Results
Variances*
Variable overhead costs
Indirect materials ………………………
$11,250
$10,000
$1,250
F
Indirect labor …………………………..
18,000
16,000
2,000
F
Power ……………………………………….
4,500
4,500
0
Maintenance …………………………..
2,250
3,000
750
U
Total variable costs …………………..
36,000
33,500
2,500
F
Fixed overhead costs
12,000
12,000
20,000
19,200
F
Taxes and insurance …………………
2,400
3,000
U
Supervisory salaries ………………….
13,600
14,000
U
Total fixed costs………………………..
48,000
48,200
U
Volume Variance
80% of capacity
90% of capacity
Exercise 21–23 (25 minutes)
1. and 2. Sales price and sales volume variances
Sales Actual Sales
Flexible Budget
Fixed Budget
Units 350
350
365
Price/unit $1,200
$1,100
$1,100
PROBLEM SET A
Problem 21-1A (60 minutes)
Part 1
Variable or Fixed Classification
Amount*
Variable sales (total divided by 15,000 units)
Sales ……………………………………………………………………………………..
$ 200.00
Variable costs (total divided by 15,000 units)
Direct materials ……………………………………………………………………..
$ 65.00
Direct labor ……………………………………………………….…………………..
15.00
Machinery repairs ………………………………………………………………….
4.00
Utilities ($45,000 variable) ………………………………………………………
3.00
Packaging …………………………..…………………………………………………
5.00
Shipping ………………………………………………………………………………..
7.00
Total variable costs ………………………………………………………………..
$ 99.00
Fixed costs
$ 300,000
Utilities ($195,000 – $45,000 variable) ………………………………………
Plant management salaries …………………………………………………….
Sales salary …………………………………………………………………………..
Salaries …………………………………………………………………………………
Entertainment expense …………………………………………………………..
90,000
Problem 21-1A (Continued)
Part 2
PHOENIX COMPANY
Flexible Budgets
For Year Ended December 31, 2019
Flexible Budget
Flexible
Flexible
Variable
Amount
per Unit
Total
Fixed
Cost
Budget for
Unit Sales
of 14,000
Budget for
Unit Sales
of 16,000
Sales ……………………………….
$200.00
$2,800,000
$3,200,000
Variable costs
Direct materials ……………..
65.00
910,000
1,040,000
210,000
240,000
Machinery repairs ………….
Packaging ……………………..
Shipping ………………………..
7.00
98,000
112,000
Total variable costs ……….
99.00
1,386,000
1,584,000
Contribution margin …………
$101.00
1,414,000
1,616,000
Fixed costs
Depreciation—Plant Equip ….
$ 300,000
300,000
300,000
Utilities ………………………….
150,000
150,000
150,000
Plant mgmt. salaries ………
200,000
200,000
200,000
Sales salary. ………………….
250,000
250,000
250,000
Advertising expense ………
125,000
125,000
125,000
Salaries …………………………
241,000
241,000
241,000
Entertainment expense ….
90,000
Total fixed costs…………….
1,356,000
1,356,000
Problem 21-1A (Continued)
Part 3
Operating income increase for a 15,000 to 18,000 unit sales increase
Possible sales (units) ………………………………………………………
18,000
Contribution margin per unit ……………………………………………
x $101
Total contribution margin ………………………………………………..
$1,818,000
Less: Fixed costs ……………………………………………………….
(1,356,000)
Potential operating income ……………………………………………..
$ 462,000
Part 4
Operating income (loss) at 12,000 units
Possible sales (units) ………………………………………………………
12,000
Contribution margin per unit ……………………………………………
x $101
Total contribution margin ………………………………………………..
Problem 21-2A (45 minutes)
Part 1
PHOENIX COMPANY
Flexible Budget Performance Report
For Year Ended December 31, 2019
Flexible
Actual
Budget
Results
Variances*
Sales (18,000 units) ……………………..
$3,600,000
$3,648,000
$48,000
F
Variable costs
Direct materials …………………………
15,000
U
270,000
278,000
8,000
U
Machinery repairs ……………………..
F
Utilities ……………………………………..
54,000
53,000
1,000
F
Packaging …………………………………
90,000
87,500
2,500
F
Shipping …………………………………..
126,000
118,500
7,500
F
Total variable costs …………………..
1,782,000
1,785,000
3,000
U
Contribution margin …………………….
1,818,000
1,863,000
45,000
F
Fixed costs
Depreciation—Plant equip. ………..
300,000
300,000
0
Utilities ……………………………………..
150,000
147,500
2,500
F
Plant management salaries ……….
200,000
210,000
10,000
U
Sales salary ………………………………
250,000
268,000
18,000
U
Advertising expense ………………….
125,000
132,000
7,000
U
Salaries …………………………………….
241,000
241,000
0
Total fixed costs………………………..
1,356,000
1,392,000
36,000
U
Problem 21-2A (Continued)
Part 2
(a) Sales variance
Total
Per unit
Budgeted sales ……………………………………………………..
$3,600,000
Actual sales …………………………..…………………………..
(b) Direct materials variance
Total
Per unit
Budgeted materials………………………………………………..
$1,170,000
$ 65.00
Actual materials used …………………………………………….
1,185,000
65.83
Direct materials variance ……………………………………….
$ 15,000
$ 0.83
U
Interpretation:
The direct materials variance is unfavorable for two possible reasons. (1)
The quantity of materials used may have been more than the quantity
budgeted, and/or (2) the amount paid for the materials might have been
more than the budgeted purchase price.
Problem 21-3A (60 minutes)
Part 1
Variable or Fixed Classification
Amount
Variable costs (total divided by 15,000 units)
Indirect materials …………………………………………………………………..
$ 3.00
Indirect labor …………………………………………………………………………
12.00
Power ……………………………………………………………………………………
3.00
Repairs and maintenance ………………………………………………………
6.00
Fixed costs (per month)
$ 24,000
Taxes and insurance ……………………………………………………………..
Supervision …………………………………………………………………………..
79,000
Part 2
ANTUAN COMPANY
Flexible Overhead Budgets
For Month Ended October 31
Flexible Budget
Flexible
Flexible
Flexible
Variable
Amount
per Unit
Total
Fixed
Cost
Budget for
Unit Sales
of 13,000
Budget for
Unit Sales
of 15,000
Budget for
Unit Sales
of 17,000
Variable overhead costs
Indirect materials ……………
$ 3.00
$ 39,000
$ 45,000
$ 51,000
Indirect labor ………………….
12.00
156,000
180,000
204,000
Power …………………………..
3.00
39,000
45,000
51,000
Repairs and maint. ………….
6.00
78,000
90,000
102,000
Total variable costs…………
$24.00
312,000
360,000
408,000
Fixed overhead costs
Taxes and insurance……….
12,000
12,000
12,000
Supervision ……………………
79,000
79,000
Total fixed costs ……………..
195,000
195,000