Accounting Chapter 21 The favorable labor efficiency variance means the actual

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1307

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.

Rate and Efficiency variances

Actual Cost

AH x AR

AH x SR

Standard Cost

SH x SR

Alternate solution format

Rate variance

= AH x (AR – SR)

= 16,250 hours x ($15.20 – $15.00) per hour

= 16,250 hours x $0.20 per hour

= $3,250 U

Efficiency variance

= (AH – SH) x SR

= (-550 hours) x $15.00 per hour

= $8,250 F

Rate variance ……………

Efficiency variance ……

Total ………………………..

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

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

Rate and Efficiency variances

Actual Cost

AH x AR

AH x SR

Standard Cost

SH x SR

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

Budgeted (flexible) overhead

Exercise 21-17 (20 minutes)

1.

Standard Overhead Rate

Budgeted

Overhead

Standard

Direct Labor

Hours

Standard

Overhead

Rate*

2.

3.

Actual total overhead (given) ………………………………………….

$305,000

Exercise 21–18 (30 minutes)

1. Volume variance

Budgeted (flexible) overhead

2. Controllable variance

Actual total overhead (given) …………………………….

$305,000

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

Exercise 21-19 (15 minutes)

2.

Actual total overhead (given) ……………………………………………….

$81,700

3.

Actual total overhead (given) ……………………………….

$81,700

84,000

4.

Exercise 21–20 (10 minutes)

Actual total overhead ……………………………………………………………

$13,000

Budgeted (flexible) overhead at units produced* ……………………

Controllable variance ……………………………………………………………

Exercise 21-21 (10 minutes)

Budgeted (flexible) overhead at units produced* ……………………

$56,000

Volume variance …………………………………………………………………..

$ 1,600 U

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1311

Exercise 21–22 (10 minutes)

Actual total overhead ………………………………….

$44,000

Exercise 21–23 (20 minutes)

Note: Shaded numbers must be computed.

Flexible Overhead Budgets

For Year Ended December 31

Variable

Amount

per Unit

Total

Fixed

Cost

Flexible Budget at Capacity Level of

25%

50%

75%

Production (in units) ……………

1,000

2,000

3,000

Exercise 21–24 (15 minutes)

a. Controllable variance

Actual total overhead ………………………………………………………….

$92,000

Budgeted (flexible) overhead at units produced* ………………….

85,000

Controllable variance ………………………………………………………….

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

Exercise 21-25 (25 minutes)

Preliminary calculation:

1.

Actual total overhead (given) ……………………………………….

$99,250

2.

Budgeted (flexible) overhead (see part 1) ……………………..

$ 98,400

1313

Exercise 21–25 (continued)

3.

MARIANA COMPANY

Overhead Variance Report

For Month Ended May 31

Production Level

Expected ……………………………………..

80% of capacity (8,000 units)

Actual ………………………………………….

90% of capacity (9,000 units)

Flexible

Actual

Controllable Variance

Budget

Results

Variances*

Variable overhead costs

Indirect materials ……………………….

$16,875

$15,000

$ 1,875

F

Indirect labor ……………………………..

F

U

F

2,600

U

2,600

U

Volume Variance

Budgeted (flexible) overhead ……….

98,400

Standard overhead applied† …………

103,950

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1314

Exercise 21–26 (20 minutes)

1. and 2. Sales Price and Sales Volume variances

Sales Actual Sales

Flexible Budget

Fixed Budget

Units 350

350

365

Exercise 21-27A (10 minutes)

1. Variable overhead cost variance

Actual variable overhead [given] ……………………………………..

$1,375,000

Actual fixed overhead [given] …………………………..……………..

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1315

Exercise 21-28A (20 minutes)

1. Variable overhead Spending and Efficiency variances

Actual Overhead

AH x AVR

AH x SVR

Applied Overhead

SH x SVR

(Given)

340,000 x $4.00

350,000 x $4.00

hours per hour

Spending variance

Variable overhead variance

2. Fixed overhead Spending and Volume variances

Actual Overhead

Budgeted Overhead

Applied Overhead

(Given)

350,000 x $1.60

hours per hour

Spending variance

3. Controllable variance is computed as (see Exhibit 21A.1):

Variable overhead spending variance …….

$15,000 U

Fixed overhead spending variance …………

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1316

PROBLEM SET A

Problem 21-1A (60 minutes)

Part 1

Variable or Fixed Classification

Amount*

Variable sales (divided by 15,000 units)

Sales ………………………………………………………….

$ 200.00

Variable costs (divided by 15,000 units)

Total variable costs …………………………………….

Fixed costs

Depreciation—Machinery …………………………...

$ 300,000

Supervisory salaries …………………………………..

200,000

Sales staff salaries ……………………………………..

250,000

Depreciation—Office equipment ………………….

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1317

Problem 21-1A (Continued)

Part 2

PHOENIX COMPANY

Flexible Budgets

For Year Ended December 31

Variable

Amount

per Unit

Total

Fixed

Cost

Budget for Unit Sales of

14,000

16,000

Sales …………………………..…….

$200

$2,800,000

$3,200,000

Variable costs

Direct materials ………………

65

910,000

1,040,000

15

210,000

240,000

Sales staff commissions …

240,000

Total variable costs …………

$101

1,616,000

Fixed costs

Depreciation—Machinery ….

$ 300,000

300,000

Supervisory salaries ……….

200,000

250,000

411,000

Total fixed costs ……………..

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1318

Problem 21-1A (Continued)

Part 3

Income statement for sales of 18,000 units

PHOENIX COMPANY

Budgeted Income Statement

For Year Ended December 31

Sales (in units) …………………………………………………….

18,000

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1319

Problem 21-2A (45 minutes)

PHOENIX COMPANY

Flexible Budget Performance Report

Flexible

Actual

For Year Ended December 31

Budget

(18,000 units)

Results

(18,000 units)

Variances*

Sales …………………………..………….

$3,600,000

$3,648,000

$48,000

F

Variable costs

Direct materials ……………………

15,000

U

Sales staff commissions ………

F

Total variable costs ………………

U

Fixed costs

Depreciation—Machinery ……..

300,000

0

Supervisory salaries …………….

200,000

210,000

10,000

U

411,000

U

Total fixed costs …………………..

U

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1320

Problem 21-3A (50 minutes)

Part 1

ANTUAN COMPANY

Flexible Overhead Budgets

For Month Ended October 31

Variable

Amount

per Unit

Total

Fixed

Cost

Flexible Budget at Capacity Level of

65%

75%

85%

Production (in units) ……..

13,000

15,000

17,000

Variable overhead costs

Indirect materials ………..

Indirect labor ………………

Power …………………………

39,000

45,000

51,000

Total variable overhead .

Fixed overhead costs

Depreciation—Building .

$ 24,000

24,000

Depreciation—Mach. ……

80,000

Supervisory salaries ……

Total fixed overhead ……

$195,000

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1321

Problem 21-3A (Continued)

Part 2 Direct Materials Variances

Preliminary computations

Actual quantity …………………………….

91,000 lbs. (given)

Standard quantity…………………………

15,000 units x 6 lb./unit = 90,000 lb.

Actual price …………………………………

$5.10/lb. (given)

Standard price ……………………………..

$5.00/lb. (given)

Actual quantity and price [91,000 lbs. @ $5.10] …………………………..

$464,100

Standard quantity and price [90,000 lbs. @ $5.00] ……………………….

Direct Materials Price and Quantity Variances

Actual Costs

AQ x AP

AQ x SP

Standard Costs

SQ x SP

Alternate solution format

Price variance

=

AQ x (AP – SP)

=

91,000 lb. x ($5.10 – $5.00) per lb.

=

91,000 lb. x ($0.10) per lb.

=

$9,100 U

Quantity variance

=

(AQ – SQ) x SP

=

(91,000 – 90,000) lb. x $5.00 per lb.

=

1,000 lb. x $5.00 per lb.

=

$5,000 U

Price variance …………..

$ 9,100 U

Quantity variance ……..

5,000 U

Total variance …………..

$14,100 U

1322

Problem 21-3A (Continued)

Part 3 Direct labor variances

Preliminary computations

Actual quantity ……………………..

30,500 hours (given)

Standard quantity………………….

15,000 units x 2 hrs./unit = 30,000 hours

Actual rate …………………………...

$17.25/hr. (given)

Standard rate ………………………..

$17.00/hr. (given)

Actual quantity and rate [30,500 hrs. @ $17.25] …………………………

Standard quantity and rate [30,000 hrs. @ $17.00] …………………….

Direct Labor Rate and Efficiency Variances

Actual Costs

AH x AR

AH x SR

Standard Costs

SH x SR

Alternate solution format

Rate variance

=

AH x (AR – SR)

=

30,500 hours x ($17.25 – $17.00) per hour

=

30,500 x $0.25 per hour

=

$7,625 U

Efficiency variance

=

(AH – SH) x SR

=

(30,500 – 30,000) hours x $17.00 per hour

=

500 hours x $17.00 per hour

=

$8,500 U

Rate variance ……………

Efficiency variance ……

Total ………………………..

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1323

Problem 21-3A (Concluded)

Part 4

ANTUAN COMPANY

Overhead Variance Report

For Month Ended October 31

Production Level

Expected …………………………………….

75% of capacity

Actual …………………………………………

75% of capacity

Flexible

Actual

Controllable Variance

Budget

Results

Variances*

Variable overhead costs

Indirect materials ………………………

F

Indirect labor …………………………….

F

Power ……………………………………….

45,000

43,000

F

Maintenance ……………………………..

U

Total variable overhead costs ……

U

Fixed overhead costs

Depreciation—Building ……………..

24,000

0

Depreciation—Machinery …………..

80,000

75,000

5,000

F

Taxes and insurance …………………

12,000

11,500

F

Supervisory salaries ………………….

U

Total fixed overhead costs ………..

U

Volume Variance

Budgeted (flexible) overhead ………

$555,000

Total overhead variance ………………

U

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1324

Problem 21-4A (40 minutes)

Part 1 Direct Materials Variances

Direct materials variances

Actual quantity and actual price [1,615,000 lbs. @ $4.10] ……

$6,621,500

Standard quantity and standard price [1,620,000 lbs. @ $4.00] ..

Direct Materials Price and Quantity Variances

Actual Cost

AQ x AP

AQ x SP

Standard Cost

SQ x SP

1,615,000 x $4.10

1,615,000 x $4.00

1,620,000 x $4.00

$6,480,000

Part 2 Direct Labor Variances

Direct labor variances

Actual quantity and actual rate [265,000 hrs. @ $13.75] ………

$3,643,750

Standard quantity and standard rate [270,000 hrs. @ $14.00] …..

Direct Labor Rate and Efficiency Variances

Actual Cost

AH x AR

AH x SR

Standard Cost

SH x SR

$3,780,000

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21

1325

Problem 21-4A (Continued)

Part 3 Overhead Variances

Controllable variance

Actual total overhead [$2,350,000 + $2,200,000] ……………..

$4,550,000

Standard overhead applied [270,000 hrs. @ $18] …………….

1326

Problem 21-5AA (15 minutes)

(a) Variable overhead variances

Variable Overhead Spending and Efficiency Variances

Actual Overhead

AH x AVR

Budgeted Overhead

AH x SVR

Applied Overhead

SH x SVR

(b) Fixed overhead variances

Fixed Overhead Spending and Volume Variances

Actual Overhead

Budgeted Overhead

Applied Overhead

270,000 x $10

(c) Controllable variance

Variable overhead spending variance …………………………..

$ 80,000 U

Variable overhead efficiency variance ………………………….

Fixed overhead spending variance ……………………………….