CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-15
Direct labor hours 18,000 20,000 22,000
V
ariable overhead cost:
Indirect factory labor $162,000 $180,000 $198,000
Power and light 10,800 12,000 13,200
Indirect materials 57,600 64,000 70,400
1
($180,000 ÷ 20,000) × 18,000 units
For the Month Ended November 30
Leno Manufacturing Company
Factory Overhead Cost Budget—Press Department
1
2
3
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-16
a.
Direct labor hours 9,000 10,000 11,000
b. Overhead applied at actual production:
Actual hours……………………………………………………………………
…
9,000
× Overhead application rate*…………………………………………………
…
$ 10.50
Factory overhead applied……………………………………………………
…
$94,500
*Total factory overhead rate to be applied to production:
V
ariable factory overhead…………………………………………… $ 4.50
Wiki Wiki Company
Monthly Factory Overhead Cost Budget—Fabrication Department
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-17
Variable factory overhead controllable variance:
Actual variable factory overhead cost incurred……
…
$192,000
Less budgeted variable factory overhead
for 15,600 hrs. [15,600 × ($20.00 – $8.00)]…………… 187,200
V
ariance—unfavorable………………………………
…
$4,800
Fixed factory overhead volume variance:
Productive capacity at 100%……………………………
…
16,000 hrs.
*
Actual Overhead – Applied Overhead = Total Overhead Variance:
($192,000 + $128,000) – $312,000 = $8,000
Actual costs 320,000 Applied costs 312,000
Balance (underapplied) 8,000
Actual Applied
Factory Factory
Overhead Overhead
Produced
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
V
…
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-18
a. Controllable variance:
Actual variable factory overhead
b. Volume variance:
V
olume at 100% of normal capacity…………………………
…
100,000
Less standard hours…………………………………………… 92,500
Idle capacity……………………………………………………
…
7,500
× Fixed overhead rate
2
…………………………………………
…
$2.40
V
olume variance—unfavorable………………………………
…
18,000
Total factory overhead cost
variance—unfavorable………………………………………
…
$ 5,000
3
×
1
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-18 (Concluded)
Actual costs 782,000 Applied costs 777,000
Balance (underapplied) 5,000
Applied
Factory
Overhead
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
Produced
Actual
Factory
Overhead
Overhead for Amount
*
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-19
In determining the volume variance, the productive capacity overemployed (2,000
hours) should be multiplied by the standard fixed factory overhead rate of $3.80
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)
Fixed factory overhead volume variance:
V
…
Total factory overhead cost variance—favorable……
…
$(11,600)
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 Overhead
Produced
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-20
Productive capacity for the month 25,000 hrs.
Actual productive capacity used for the month 22,000 hrs.
Budget
(at actual
Total variable factory
overhead cost $ 86,700 $ 85,800
Fixed factory overhead costs:
Supervisory salaries $ 54,500 $ 54,500
Depreciation of plant and
equipment 40,000 40,000
Net controllable variance—unfavorable $ 900
Volume variance—unfavorable:
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
22,000 hours by the variable factory overhead cost rate for each variable cost
category. These rates are determined by dividing each budgeted amount
(estimated at the beginning of the month) by the planned (budgeted) volume
of 20,000 hours. Thus, for example:
Tannin Products Inc.
Factory Overhead Cost Variance Report—Trim Department
For the Month Ended July 31
Variances
2
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-20 (Concluded)
Actual costs 216,700 Applied costs 200,200
Balance (underapplied) 16,500 [22,000 × ($3.90* + $5.20)]
Actual Applied
Factory Factory
Overhead Overhead
Produced
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-21
12,450 × $48.50
22,450 × $3.50 ($52.00 – $48.50)
32,450 × $52.00
b. Work in Process197,000
Direct Materials Quantity Variance24,850
Materials392,150
Ex. 23-22
31 Work in Process1198,000
15,000 × 2.20 hrs. × $18.00
Direct labor time variance: (11,500 – 11,000) × $18.00 = $9,000 U
Direct labor rate variance: ($17.60 – $18.00) × 11,500 = $(4,600) F
211,500 hours × $17.60 per hour
Mar.
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-23
Sales $996,000
Cost of goods sold—at standard 634,000
Gross profit—at standard $362,000
Unfavorable (Favorable)
Variance adjustments to gross profit
at standard:
Direct materials price $1,830
Direct materials quantity $ (720)
Direct labor rate (1,240)
Direct labor time 490
Variable factory overhead controllable (250)
Arseneault Company
Income Statement
For the Month Ended December 31
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-24
a. and b.
Average computer response X A measure of the speed of the
time to customer “clicks” ordering process. If the speed is
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
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
responsiveness and reliability.
Explanation
Input
Measure
Output
Measure
CHAPTER 23 Evaluating Variances from Standard Costs
Ex. 23-25
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,
which means it should not pose a burden to students. Students should be able
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-1A
a. Standard
Materials and
Labor Cost
per Faucet
b.
Price variance:
= ($2.50 per lb. – $2.40 per lb.) × 14,350 lb.
= $1,435 Unfavorable
Total direct materials cost variance:
= $1,435 Unfavorable + $(120) Favorable
= $1,315 Unfavorable
Direct Materials
Cost Variance =Direct Materials Price Variance +
Direct Materials Quantity Variance
PROBLEMS
Direct Materials Cost Variance
Direct Materials
Price Variance = (Actual Price – Standard Price) × Actual Quantity
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-1A (Concluded)
c.
Rate variance:
*90 employees × 36 hrs.
Time variance:
= (3,240 hrs.* – 3,200 hrs.**) × $15.00 per hour
= $600 Unfavorable
*90 employees × 36 hrs.
** 4,800 units × (40 min. ÷ 60 min.)
Total 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
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-2A
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)
× Actual quantity……………………………… 140,300 188,000
Direct materials price variance………… $ 11,224 U$ (9,400) F $1,824 U
Total direct materials cost variance…………
…
$1,199 U
Alternatively, total direct materials cost variance:
Actual cost 2…………………………………… $1,028,399 $253,800
Standard cost 3………………………………
…
1,015,000 266,000
Total direct materials cost variance…
…
$ 13,399 U$ (12,200) F$1,199 U
1140,000 = (12 lb. × 5,000 actual production of dark chocolate) + (8 lb.
× 10,000 actual production of light chocolate)
190,000 = (10 lb. × 5,000 actual production of dark chocolate) + (14 lb.
× 10,000 actual production of light chocolate)
Cocoa Sugar Total
V
…
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-2A (Concluded)
1. b.
Direct Labor Variance
Rate variance:
Time variance:
Actual time…………………………………
…
2,360 6,120
Standard time
1
……………………………
…
2,500 6,000
V
ariance……………………………………
…
(140) 120
× 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:
…
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
different from the planned volume, as it was in this case, then the budget used
for performance evaluation should reflect the amount of direct materials and
Chocolate Chocolate Total
Dark Light
…
V
…
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-3A
a.
Price variance:
= ($3.25 per lb. – $3.20 per lb.) × 118,500 lb.
= $5,925 Unfavorable
Total direct materials cost variance:
= $5,925 Unfavorable + $(4,800) Favorable
= $1,125 Unfavorable
b.
Rate variance:
= ($25.00 – $24.40) × 11,700 hrs.
= $7,020 Unfavorable
Total direct labor cost variance:
= $7,020 Unfavorable + $(7,320) Favorable
= $(300) Favorable
=
Direct Labor Cost Variance
Direct Labor
Rate Variance
=
Direct Labor Rate Variance + Direct Labor Time
Variance
(Actual Rate per Hour – Standard Rate per Hour)
× Actual Hours
Direct Labor
Cost Variance
= (Actual Price – Standard Price) × Actual Quantity
Direct Materials Cost Variance
Direct Materials
Cost Variance =
Direct Materials
Price Variance
Direct Materials Price Variance +
Direct Materials Quantity Variance
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-3A (Concluded)
Variable factory overhead controllable variance:
Actual variable factory overhead cost incurred……………
…
$91,200
Less budgeted variable factory overhead for
12,000 hrs.* ……………………………………………………
…
96,000
V
ariance—favorable…………………………………………
…
$ (4,800)
× Standard fixed factory overhead cost rate………………
…
$10.00
V
ariance—unfavorable……………………………………
…
30,000
Total factory overhead cost variance—unfavorable…………
…
$25,200
40,000 units × 0.3 hr. per unit
12,000 hrs. × $8.00
Actual costs 241,200 Applied costs 216,000
($91,200 + $150,000) [12,000 × ($8.00 + $10.00)]
Balance (underapplied) 25,200
Actual Applied
Factory Factory
Overhead Overhead
V
Factory Overhead Cost Variance
c.
*
**
Produced
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory
**
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-4A
Normal capacity for the month 8,400
hrs.
Actual production for the month 8,860 hrs.
Actual Budget Unfavorable (Favorable)
Variable costs:
1
Fixed costs:
Supervisory salaries $ 20,000 $ 20,000
Depreciation of plant and
equipment 36,200 36,200
Net controllable variance—unfavorable $ 770
Volume variance—favorable:
Excess hours used over normal at the
1
The 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
Variances
CHAPTER 23 Evaluating Variances from Standard Costs
Prob. 23-4A (Concluded)
Actual costs 143,050 Applied costs* 146,190
[8,860 × ($8.00 + $8.50)]
Balance (overapplied) 3,140
Actual Applied
Factory Factory
Overhead Overhead
Produced
Overhead for Amount
Alternative Computation of Overhead Variances
Factory Overhead
Budgeted Factory