CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–15 (FIN MAN); Ex. 7–15 (MAN)
Direct labor hours 18,000 20,000 22,000
Variable overhead cost:
Indirect factory labor $162,000 $180,000 $198,000
Power and light 10,800 12,000 13,200
LENO MANUFACTURING COMPANY
Factory Overhead Cost Budget—Press Department
For the Month Ended November 30
1
2
22-21
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–16 (FIN MAN); Ex. 7–16 (MAN)
a.
Direct labor hours 9,000 10,000 11,000
b. Overhead applied at actual production:
Actual hours……………………………………………………………………
…
9,000
…
*Total factory overhead rate to be applied to production:
V
ariable factory overhead…………………………………………… $ 4.50
Fixed factory overhead**……………………………………………
…
6.00
WIKI WIKI COMPANY
Monthly Factory Overhead Cost Budget—Fabrication Department
22-22
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–17 (FIN MAN); Ex. 7–17 (MAN)
Variable factory overhead controllable variance:
$262,000
Fixed factory overhead volume variance:
Productive capacity at 100%……………………………
…
15,000 hrs.
Standard for amount produced…………………………
…
14,000 hrs.
22-23
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–17 (FIN MAN); Ex. 7–17 (MAN) (Concluded)
Actual costs 352,000 Applied costs 350,000
Balance (underapplied) 2,000
Actual Applied
Factory Factory
Overhead Overhead
Produced
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
22-24
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–18 (FIN MAN); Ex. 7–18 (MAN)
a. Controllable variance:
Actual variable factory overhead
($782,000 – $240,000)…………………………
…
$542,000
Standard variable factory overhead
b. Volume variance:
V
olume at 100% of normal capacity…………………………
…
100,000
Less standard hours…………………………………………… 92,500
V
$540,000
90,000 hrs.
1
=Variable factory overhead rate: $6.00 per hour
22-25
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–18 (FIN MAN); Ex. 7–18 (MAN) (Concluded)
Actual costs 782,000 Applied costs 777,000
Balance (underapplied) 5,000
Applied
Factory
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
Actual
Factory
Overhead for Amount
*
22-26
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
($7.30 – $3.50) to yield a favorable variance of $7,600. The variance analysis
provided by the chief cost accountant incorrectly multiplied the 2,000 hours by
the total factory overhead rate of $7.30 per hour and reported it as unfavorable.
A correct determination of the factory overhead cost variances is as follows:
Variable factory overhead controllable variance:
Actual variable factory overhead cost incurred…………
…
$458,000
Budgeted variable factory overhead for 132,000
hours (132,000 × $3.50)……………………………………
…
462,000
V
ariance—favorable………………………………………
…
$ (4,000)
V
…
22-27
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–19 (FIN MAN); Ex. 7–19 (MAN) (Concluded)
Actual costs 952,000 Applied costs 963,600
($458,000 + $494,000) [($3.50 + $3.80) × 132,000]
Balance (overapplied) 11,600
Actual Applied
Factory Factory
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
22-28
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–20 (FIN MAN); Ex. 7–20 (MAN)
Indirect materials 22,000 24,000 $ 2,000
Total variable factory
overhead cost $ 85,800 $ 86,700
Fixed factory overhead costs:
Supervisory salaries $ 54,500 $ 54,500
Idle hours at the standard rate for fixed factory overhead
:
(25,000 hrs. – 22,000 hrs.) × $5.20 15,600
Total factory overhead cost variance—unfavorable $16,500
1
The budgeted variable factory overhead costs are determined by multiplying
TANNIN PRODUCTS INC.
Factory Overhead Cost Variance Report—Trim Department
22-29
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–20 (FIN MAN); Ex. 7–20 (MAN) (Concluded)
Actual costs 216,700 Applied costs 200,200
Balance (underapplied) 16,500 [22,000 × ($3.90* + $5.20)]
Actual Applied
Factory Factory
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
22-30
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–21 (FIN MAN); Ex. 7–21 (MAN)
a. Materials
1
118,825
2,450 × $52.00
b. Work in Process
1
97,000
Direct Materials Quantity Variance
2
4,850
Materials
3
92,150
Ex. 22–22 (FIN MAN); Ex. 7–22 (MAN)
31 Work in Process
1
198,000
Direct Labor Time Variance 9,000
Direct Labor Rate Variance 4,600
Mar.
22-31
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–23 (FIN MAN); Ex. 7–23 (MAN)
Sales $868,000
Cost of goods sold—at standard 550,000
Gross profit—at standard $318,000
Favorable Unfavorable
Less variances from standard cost:
Direct materials price $ — $ 1,680
Gross profit $314,640
Operating expenses:
Selling expenses $125,000
Administrative expenses 100,800 225,800
GRIGGS COMPANY
Income Statement
For the Month Ended December 31, 2016
22-32
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–24 (FIN MAN); Ex. 7–24 (MAN)
a. and b.
Average computer response X A measure of the speed of the
time to customer “clicks” ordering process. If the speed is
too slow, we may lose customers.
Maintenance dollars divided X A driver of the ordering system’s
by hardware investment reliability and downtime. The
maintenance dollars should be
divided by the amount of hardware
in order to facilitate comparison
across time.
Number of orders per X This measure is related to the
warehouse employee capacity of the warehouse relative
to the demands placed upon it.
This relationship will impact the
delivery cycle time.
Number of page faults or X The page errors will negatively
errors due to software impact the customer’s ordering
programming errors experience. It’s a measure of
process output quality.
Explanation
Input
Measure
Output
Measure
22-33
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Ex. 22–25 (FIN MAN); Ex. 7–25 (MAN)
a. Possible Input Measures
Registration staffing per student
Technology investment per period for registration process
Training hours per registration personnel
Amount of faculty staffing
Possible Output Measures
Cycle time for a student to register for classes
Number of times a course is unavailable
Number of separate registration events or steps (log-ons or line waits)
per student
Number of times a replacement course was used by a student
Number of registration errors
b. Alpha University is interested in not only the efficiency of the process but
also the quality of the process. This means that the process must meet multiple
objectives. The college wants this process to meet the needs of students,
22-34
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–1A (FIN MAN); Prob. 7–1A (MAN)
a.
Standard
Materials and
Labor Cost
b.
Price variance:
= ($2.72 per lb. – $2.80 per lb.) × 59,875 lbs.
= –$4,790 Favorable
PROBLEMS
Direct Materials Cost Variance
Direct Materials
Price Variance = (Actual Price – Standard Price) × Actual Quantity
22-35
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–1A (FIN MAN); Prob. 7–1A (MAN) (Concluded)
c.
Rate variance:
= ($21.40 – $21.00) × 4,000 hrs.*
= $1,600 Unfavorable
Direct Labor Cost Variance
Direct Labor
Rate Variance
=(Actual Rate per Hour – Standard Rate per Hour)
× Actual Hours
22-36
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–2A (FIN MAN); Prob. 7–2A (MAN)
1. a.
Direct Materials Variance
Price variance:
Actual price……………………………………
…
$ 7.33 $ 1.35
Standard price………………………………… 7.25 1.40
V
ariance………………………………………
…
$ 0.08 $ (0.05)
× Standard price………………………………
…
$7.25 $1.40
Direct materials quantity variance……
…
$ 2,175 U$ (2,800) F(625) F
Total direct materials cost variance…………
…
$1,199 U
Alternatively, total direct materials cost variance:
Actual cost
2
…………………………………… $1,028,399 $253,800
Cocoa Sugar Total
22-37
…
V
…
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–2A (FIN MAN); Prob. 7–2A (MAN) (Concluded)
1. b.
Direct Labor Variance
Rate variance:
Actual rate…………………………………
…
$ 15.25 $ 15.80
Standard rate………………………………
…
15.50 15.50
V
ariance……………………………………
…
$ (0.25) $ 0.30
× Standard rate……………………………
…
$ 15.50 $ 15.50
Direct labor time variance……………
…
$ (2,170) F$ 1,860 U(310) F
Total direct labor cost variance……………
…
$ 936 U
Alternatively, total direct labor cost variance:
Actual cost
2
………………………………… $35,990 $96,696
1
2,500 = 0.50 hr. × 5,000 actual production of dark chocolate
6,000 = 0.60 hr. × 10,000 actual production of dark chocolate
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 is
Chocolate Chocolate Total
Dark Light
22-38
V
…
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–3A (FIN MAN); Prob. 7–3A (MAN)
a.
Price variance:
= ($50.60 per lb. – $50.00 per lb.) × 4,950 lbs.
Total direct materials cost variance:
Direct Materials Cost Variance
Direct Materials
Cost Variance =
Direct Materials
Price Variance
Direct Materials Price Variance +
Direct Materials Quantity Variance
= (Actual Price – Standard Price) × Actual Quantity
22-39
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
Prob. 22–3A (FIN MAN); Prob. 7–3A (MAN) (Continued)
b.
Rate variance:
Time variance:
Total direct labor cost variance:
=
Direct Labor Cost Variance
Direct Labor
Rate Variance
Direct Labor
Time Variance
=
Direct Labor Time Variance + Direct Labor Rate Variance
(Actual Rate per Hour – Standard Rate per Hour)
× Actual Hours
=(Actual Direct Labor Hours – Standard Direct Labor Hours)
× Standard Rate per Hour
Direct Labor
Cost Variance