Problem 10A-10 (continued)
Fixed overhead variances:
Fixed Overhead Applied
to Work in Process
Budgeted Fixed
Overhead
Actual Fixed
Overhead
16,000 MHs ×
£4 per MH
= £64,000
£72,000
£70,000
Volume variance
= £8,000 U
Budget variance
= £2,000 F
Verification of variances:
Variable overhead efficiency variance ……………
£1,750
F
Variable overhead rate variance …………………..
250
U
Fixed overhead volume variance ………………….
U
Fixed overhead budget variance …………………..
Underapplied overhead ……………………………..
U
Problem 10A–10 (continued)
4. Variable overhead
Variable overhead rate variance:
This variance includes both price and
quantity elements. The overhead spending variance reflects differences
between actual and standard prices for variable overhead items. It also
reflects differences between the amounts of variable overhead inputs
hours, then more effective use of machine-hours has the indirect effect
of reducing variable overhead. Because 1,000 fewer machine-hours
were required than indicated by the standards, the indirect effect was
presumably to reduce variable overhead spending by about £1,750
(£1.75 per machine-hour × 1,000 machine-hours).
Fixed overhead
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 10A-11 (45 minutes)
1.
$240,000
Total: =$8.00 per DLH
2.
Direct materials: 4 feet × $3.00 per foot ……………
$12.00
Direct labor: 1.5 DLHs × $12.00 per DLH …………..
18.00
Variable overhead: 1.5 DLHs × $2.00 per DLH ……
Fixed overhead: 1.5 DLHs × $6.00 per DLH ……….
Standard cost per unit …………………………………..
$42.00
3. a. 22,000 units × 1.5 DLHs per unit = 33,000 standard DLHs.
b.
Manufacturing Overhead
Actual costs
244,000
Applied costs (33,000
standard DLHs ×
$8.00 per DLH)
264,000
Overapplied overhead
20,000
4. Variable overhead variances:
Standard Hours Allowed
for Actual Output,
Actual Hours of Input,
Actual Hours of Input,
Problem 10A-11 (continued)
Alternative solution:
Variable overhead efficiency variance = SR (AH – SH)
= $2.00 per DLH (35,000 DLHs – 33,000 DLHs)
= $4,000 U
Alternative solution:
( )
( )
Fixed Portion of
Volume Denominator Standard Hours
= the Predetermined –
Variance Hours Allowed
Overhead Rate
= $6 per DLH 30,000 DLHs – 33,000 DLHs
= $18,000 F
Problem 10A–11 (continued)
Summary of variances:
U
F
F
5. Only the volume variance would have changed. It would have been
unfavorable, because the standard DLHs allowed for the year’s
1.
Direct materials, 4 pounds × $2.60 per pound …………………..
$10.40
Direct labor, 2 DLHs × $9.00 per DLH ………………………………
18.00
Variable manufacturing overhead, 2 DLHs × $3.80 per DLH* ..
Fixed manufacturing overhead, 2 DLHs × $7.00 per DLH** ….
Standard cost per unit ………………………………………………….
$34,200 ÷ 9,000 DLHs = $3.80 per DLH
$63,000 ÷ 9,000 DLHs = $7.00 per DLH
2. Materials variances:
Materials quantity variance = SP (AQ – SQ)
= $2.60 per pound (20,000 pounds – 19,200 pounds*)
= $2,080 U
*4,800 units × 4 pounds per unit = 19,200 pounds
Problem 10A-12 (continued)
3. Variable manufacturing overhead variances:
Standard Hours Allowed
for Actual Output,
Actual Hours of Input,
Actual Hours of Input,
Variable overhead
efficiency variance
= $1,520 U
Variable overhead
rate variance
= $2,100 F
Spending variance = $580 F
Alternative solution:
Variable overhead efficiency variance = SR (AH – SH)
= $3.80 per DLH (10,000 DLHs – 9,600 DLHs)
= $1,520 U
9,600 DLHs ×
Problem 10A-12 (continued)
Alternative solution:
( )
Fixed Portion of
Volume Denominator Standard Hours
= the Predetermined –
Variance Hours Allowed
Overhead Rate
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
overhead costs is spread over more units as the denominator activity
increases.
Appendix 10B
Journal Entries to Record Variances
Exercise 10B-1 (20 minutes)
1. The general ledger entry to record the purchase of materials for the
month is:
Raw Materials
84,000
2. The general ledger entry to record the use of materials for the month is:
64,260
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 $14.00 per hour)
28,000
27,690
Exercise 10B-2 (45 minutes)
1. a.
Standard Quantity Allowed
Actual Quantity
Actual Quantity
$6.00 per foot
= $31,500
$6.00 per foot
= $36,000
$5.75 per foot
= $40,250
Materials quantity
variance = $4,500 U
Exercise 10B-2 (continued)
b. The journal entries would be:
Raw Materials (7,000 feet × $6.00 per foot) ……..
42,000
Materials Price Variance
(7,000 feet × $0.25 F per foot) ……………….
1,750
Work in Process (5,250 feet × $6.00 per foot) …..
31,500
2. a.
Standard Hours Allowed
for Actual Output,
at Standard Rate
(SH × SR)
Actual Hours of Input,
at Standard Rate
(AH × SR)
Actual Hours of Input,
at Actual Rate
(AH × AR)
= $1,250 U
Labor rate variance = AH (AR – SR)
= 725 hours ($11.20 per hour* – $10.00 per hour)
= $870 U
*$8,120 ÷ 725 hours = $11.20 per hour