Problem 8A-9A (continued)
Fixed overhead variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied to
Work in Process
$209,400
$210,000
32,000 hours ×
$6 per hour = $192,000
Volume variance:
Fixed portion of Standard
Volume Denominator
= the predetermined – hours
Variance hours
overhead rate allowed
= $6.00 per hour (35,000 hours – 32,000 hours)
= $18,000 U
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Verification:
Problem 8A-9A (continued)
4. Variable overhead
Rate variance:
This variance includes both price and quantity elements.
The overhead spending variance reflects differences between actual and
Efficiency variance:
The term “variable overhead efficiency variance” is a
misnomer, because the variance does not measure efficiency in the use
Fixed overhead
Budget variance:
This variance is simply the difference between the
budgeted fixed cost and the actual fixed cost. In this case, the variance
is favorable which indicates that actual fixed costs were lower than
anticipated in the budget.
Problem 8A–10A (45 minutes)
1. Direct materials price and quantity variances:
2. Direct labor rate and efficiency variances:
3. a. Variable overhead spending and efficiency variances:
Actual Hours of
Input, at the
Actual Rate
Actual Hours of
Input, at the
Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
Problem 8A–10A (continued)
b. Fixed overhead budget and volume variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead Applied to
Work in Process
Alternative solution:
Budget variance:
Problem 8A–10A (continued)
4. The total of the variances would be:
Direct materials variances:
Price variance ………………………………………
$ 6,400
U
Quantity variance …………………………..……..
33,800
U
Efficiency variance ………………………………..
U
Fixed manufacturing overhead variances:
Note that the total of the variances agrees with the $18,300 variance
mentioned by the president.
It appears that not everyone should be given a bonus for good cost
control. The materials quantity variance and the labor efficiency variance
are 6.7% and 3.6%, respectively, of the standard cost allowed and thus
would warrant investigation.
The company’s large unfavorable variances (for materials quantity and
Problem 8A-11A (30 minutes)
1.
Direct materials, 3 yards × $4.40 per yard ………………………..
$13.20
Direct labor, 1 DLH × $12.00 per DLH…………………………..….
12.00
2. Materials variances:
Materials price variance = AQ (AP – SP)
24,000 yards ($4.80 per yard – $4.40 per yard) = $9,600 U
Problem 8A-11A (continued)
3. Variable overhead variances:
Actual DLHs of
Input, at the
Actual DLHs of
Input, at the
Standard DLHs
Allowed for Output,
Fixed overhead variances:
Actual Fixed
Overhead
Budgeted Fixed
Overhead
Fixed Overhead
Applied to
Work in Process
Problem 8A-11A (continued)
Alternative approach to the budget variance:
Alternative approach to the volume variance:
4. The choice of a denominator activity level affects standard unit costs in
that the higher the denominator activity level chosen, the lower
standard unit costs will be. The reason is that the fixed portion of
Problem 8A–12A (45 minutes)
1.
and 2.
Per Direct Labor-Hour
Variable
Fixed
Total
Denominator of 30,000 DLHs:
Total predetermined rate ………………..
3.
Denominator Activity:
30,000 DLHs
Denominator Activity:
40,000 DLHs
Variable overhead, 2
Same ………………………
Standard cost per unit …..
Standard cost per unit ..
Direct materials, 4 feet ×
4. a. 18,000 units × 2 DLHs per unit = 36,000 standard DLHs
b.
Manufacturing Overhead
Problem 8A-12A (continued)
c. Variable overhead variances:
Actual DLHs of
Input, at the
Actual DLHs of
Input, at the
Standard DLHs
Allowed for Output,
Fixed overhead variances:
Actual Fixed
Budgeted Fixed
Fixed Overhead Applied to
Problem 8A-12A (continued)
Alternative solution:
Budget variance:
Volume variance:
Summary of variances:
Variable overhead rate variance …………….
$ 3,800
U
Problem 8A–12A (continued)
5. The major disadvantage of using normal activity is the large volume
variance that ordinarily results. This occurs because the denominator
activity used to compute the predetermined overhead rate is different
from the activity level that is anticipated for the period. In the case at
hand, the company has used a long-run normal activity figure of 30,000
Appendix 8B
Journal Entries to Record Variances
Exercise 8B-1 (20 minutes)
1. The general ledger entry to record the purchase of materials for the
month is:
2. The general ledger entry to record the use of materials for the month is:
Work in Process
3. The general ledger entry to record the incurrence of direct labor cost for
the month is:
Work in Process (2,000 hours at $12.00 per hour)
24,000