Problem 10-16 (continued)
3. The computations to follow will require the standard quantities allowed
for the actual output for direct labor in each department.
Standard Hours Allowed
Sintering:
Production of Alpha8 (0.20 hours per unit × 1,500 units) ..
300 hours
Total ……………………………………………………………………
1,000 hours
Finishing:
Production of Zeta9 (0.90 hours per unit × 2,000 units) ….
1,800 hours
Total ……………………………………………………………………
3,000 hours
Direct Labor Variances—Sintering:
Labor efficiency variance = SR (AH – SH)
= $20.00 per hour (1,200 hours – 1,000 hours)
= $4,000 U
Labor rate variance = AH (AR – SR)
= 1,200 hours ($22.50 per hour* – $20.00 per hour)
= $3,000 U
*$27,000 ÷ 1,200 hours = $22.50 per hour
Case 10-17 (60 minutes)
1. The number of units produced can be computed by using the total
standard cost applied for the period for
any
input—materials, labor, or
2. 40,000 meters; see the following pages for a detailed analysis.
3. $15.71 per meter; see the following pages for a detailed analysis.
Case 10-17 (continued)
Direct materials analysis:
Standard Quantity Allowed
for Actual Output,
at Standard Price
(SQ × SP)
Actual Quantity of
Input,
at Standard Price
(AQ × SP)
Actual Quantity of
Input,
at Actual Price
(AQ × AP)
38,000 meters* ×
$16.00 per meter
= $608,000
40,000 meters** ×
$16.00 per meter
= $640,000
40,000 meters ×
$15.71 per meter***
= $628,400
Materials quantity
variance = $32,000 U
Materials price
variance = $11,600 F
*
19,000 units × 2.0 meters per unit = 38,000 meters
$640,000 ÷ $16.00 per meter = 40,000 meters
$628,400 ÷ 40,000 meters = $15.71 per meter
$304,000 ÷ 20,000 hours = $15.20 per hour
Case 10-17 (continued)
Variable overhead analysis:
19,000 hours ×
$9.00 per hour
= $171,000
$9.00 per hour
= $180,000
$176,000*
Variable overhead
efficiency variance
= $9,000 U
Variable overhead
rate variance
= $4,000 F
*
$180,000 – $4,000 = $176,000
Appendix 10A
Predetermined Overhead Rates and
Overhead Analysis in a Standard Costing
System
Exercise 10A-1 (15 minutes)
1. The total overhead cost at the denominator level of activity must be
Total variable overhead cost
($3.50 per DLH × 80,000 DLHs) …………………………….
280,000
Total overhead cost at the denominator level of activity ..
$880,000
Overhead at the denominator level of activity
Predetermined=
overhead rate Denominator level of activity
$880,000
= =$11.00 per DLH
80,000 DLHs
2.
the actual output (a) ………………………
DLHs
Standard direct labor-hours allowed for
Exercise 10A-2 (15 minutes)
1.
2.
Budget Actual fixed Budgeted fixed
= –
variance overhead cost overhead cost
Exercise 10A-3 (10 minutes)
Company X: This company has an unfavorable volume variance
because the standard direct labor-hours allowed for the
actual output are less than the denominator activity.
1.
Actual fixed overhead incurred ………………………
$79,000
Add favorable budget variance ………………………
1,000
Budgeted fixed overhead cost ……………………….
$80,000
2. 9,500 units × 2 MHs per unit = 19,000 MHs
3.
( )
Fixed Portion of
Volume Denominator Standard Hours
=the Predetermined –
Variance Hours Allowed
Overhead Rate
= $4 per MH (20,000 MHs – 19,000 MHs) = 4,000 U
Exercise 10A-5 (15 minutes)
1.
Total overhead at the
denominator activity
Predetermined =
overhead rate Denominator activity
Variable element: ($1.60 per DLH × 24,000 DLH) ÷ 24,000 DLHs =
$38,400 ÷ 24,000 DLHs = $1.60 per DLH
Fixed element: $84,000 ÷ 24,000 DLHs = $3.50 per DLH
2.
Direct materials, 2 pounds × $4.20 per pound ………………..
$ 8.40
Direct labor, 3 DLHs* × $12.60 per DLH ………………………..
37.80
Variable manufacturing overhead, 3 DLHs × $1.60 per DLH .
Fixed manufacturing overhead, 3 DLHs × $3.50 per DLH …..
Total standard cost per unit ………………………………………..
$61.50
Exercise 10A-6 (20 minutes)
1.
$1.05 per MH × 8,000 MHs + $24,800
Predetermined =
overhead rate 8,000 MHs
$8,400
= 8,000 MHs
= $1.05 per MH
Fixed portion of $24,800
the predetermined = 8,000 MHs
overhead rate
= $3.10 per MH
3. Variable overhead variances:
Variable overhead rate variance = (AH × AR) – (AH × SR)
= ($9,860) – (8,500 MHs × $1.05 per MH)
= ($9,860) – ($8,925)
= $935 U
Exercise 10A-6 (continued)
Fixed overhead budget and volume variances:
Fixed Overhead Applied
to Work in Process
Budgeted Fixed
Overhead
Actual Fixed
Overhead
*8,000 denominator MHs × $3.10 per MH = $24,800.
Alternative approach to the budget variance:
Budget Actual Fixed Budgeted Fixed
= –
Variance Overhead Cost Overhead Cost
= $25,100 – $24,800
= $300 U
Exercise 10A-7 (15 minutes)
1. 10,000 units × 0.8 DLH per unit = 8,000 DLHs.
2. and 3.
$6.00 per DLH*
= $48,000
$45,000
$45,600*
Volume variance
= $3,000 F*
Budget variance
= $600 U
*Given.
4.
Budgeted fixed overhead cost
Fixed cost element of the =
predetermined overhead rate Denominator activity
Problem 10A-8 (45 minutes)
1. Direct materials price and quantity variances:
Materials quantity variance = SP (AQ – SQ)
2. Direct labor rate and efficiency variances:
Labor efficiency variance = SR (AH – SH)
3. a. Variable manufacturing overhead spending and efficiency variances:
Standard Hours Allowed
for Actual Output,
Actual Hours of Input,
Actual Hours of Input,
Problem 10A-8 (continued)
Alternative solution:
3. b. Fixed overhead variances:
Fixed Overhead Applied
to Work in Process
Budgeted Fixed
Overhead
Actual Fixed
Overhead
30,000 DLHs ×
Alternative solution:
( )
( )
Fixed Portion of
Volume Denominator Standard Hours
=the Predetermined –
Variance Hours Allowed
Overhead Rate
=$6.00 per DLH 25,000 DLHs – 30,000 DLHs
Problem 10A-8 (continued)
4. The total of the variances would be:
Direct materials variances:
Quantity variance ……………………………………
$ 7,000
F
Price variance ………………………………………..
19,500
U
Efficiency variance ………………………………….
Rate variance…………………………………………
F
Variable manufacturing overhead variances:
Efficiency variance ………………………………….
Rate variance…………………………………………
U
Fixed manufacturing overhead variances:
Volume variance …………………………..………..
F
Budget variance ……………………………………..
F
Total of variances ……………………………………..
$12,250
Notice that the total of the variances agrees with the $12,250
unfavorable variance mentioned by the vice president.
It appears that not everyone should be given a bonus for good cost
control. The materials price variance and the labor efficiency variance
are 7.1% and 8.3%, respectively, of the standard cost allowed and thus
would warrant investigation. In addition, the variable overhead spending
variance is 5.0% of the standard cost allowed.
The reason the company’s large unfavorable variances (for materials
Problem 10A-9 (60 minutes)
1.
and 2.
Per Direct Labor-Hour
Variable
Fixed
Total
Denominator of 40,000 DLHs:
Total predetermined rate ………………..
Denominator of 50,000 DLHs:
Total predetermined rate ………………..
3.
Denominator Activity:
40,000 DLHs
Denominator Activity:
50,000 DLHs
Direct materials, 3 yards
× $5.00 per yard ……….
$15.00
Same …………………………
$15.00
Same …………………………
Variable overhead, 2.5
DLHs × $2.50 per DLH ..
Same …………………………
Fixed overhead, 2.5 DLHs
Fixed overhead, 2.5 DLHs
Total standard cost per
unit …………………………
$91.25
Total standard cost per
unit …………………………
$87.25
Direct labor, 2.5 DLHs ×
4. a. 18,500 units × 2.5 DLHs per unit = 46,250 standard DLHs
b.
Manufacturing Overhead
Actual costs
446,500
Applied costs (46,250
Problem 10A-9 (continued)
4. c.
Standard Hours Allowed
$2.50 per DLH
= $115,625
$2.50 per DLH
= $120,000
$124,800
Variable overhead
efficiency variance
= $4,375 U
Variable overhead
rate variance
= $4,800 U
Alternative solution:
Variable overhead efficiency variance = SR (AH – SH)
= $2.50 per DLH (48,000 DLHs – 46,250 DLHs)
= $4,375 U
Variable overhead rate variance = (AH × AR) – (AH × SR)
= ($124,800) – (48,000 DLHs × $2.50 per DLH)
= $4,800 U
Problem 10A-9 (continued)
Alternative solution:
Budget Actual Fixed Flexible Budget Fixed
= –
Variance Overhead Cost Overhead Cost
Summary of variances:
Variable overhead efficiency ……
$ 4,375
U
Variable overhead rate variance .
U
Fixed overhead volume ………….
F
Problem 10A-9 (continued)
5. The major disadvantage of using normal activity as the denominator in
the predetermined rate 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
Problem 10A-10 (45 minutes)
1.
£31,500 + £72,000
Total rate: =£5.75 per MH
2. 16,000 standard MHs × £5.75 per MH = £92,000
3. Variable manufacturing overhead variances:
Standard Hours Allowed
£1.75 per MH
= £28,000
£1.75 per MH
= £26,250
£26,500
Variable overhead
efficiency variance
= £1,750 F
Variable overhead
rate variance
= £250 U