14-57 All Manufacturing Variances
1. At the time of purchase. Recording the price variance for materials at time of purchase
recognizes the variance at the point it occurs. Further, if the organization in question
uses a standard cost system, then this practice results in the materials inventory being
carried at standard cost, which is consistent with the way WIP Inventory and Finished
Goods Inventory are carried. Finally, recognizing the price variance at point of purchase
provides management with timely information that, presumably, can be used to correct
any problems that arise.
2. Total actual direct labor cost =
(2,000 x $7) + (1,400 x $7.20) =
Total actual hours at the standard hourly rate =
3,400 x $7 =
Direct labor rate (price) variance
3. Total actual direct labor hours at standard wage rates =
AQ x SP = 3,400 x $7.00
Total standard direct labor cost for units manufactured
= 800 units x 4 hours/unit x $7.00/hour
Direct labor efficiency variance = SP x (AQ – SQ)
4.
AQ
AP
Iron
5,000
$2
Copper
2,200
$3.10
Direct Materials purchase price variance
Price
SP
$2
$3
=
=
=
6. Actual variable overhead (given)
FB for Variable Overhead based on Inputs (actual hours
worked) = 3,400 hours x $3.00/hours
Variable overhead spending variance
$23,800
22,400
$ 1,400U
AP-SP
-0$0.10
Price
Variance
-0$220
$220U
SP
$2.00
$3.00
Usage
Variance
$200F
600U
$400U
5.
AQ
SQ
(AQ – SQ)
Iron
3,900
800 x 5 = 4,000
100F
Copper
2,600
800 x 3 = 2,400
200U
Direct Materials usage (quantity) variance
$24,080
23,800
$ 280U
=
=
=
Alternative formula for variable overhead spending variance:
Variance = AQ x (AP – SP)
= 3,400 hours x ([$12,000/3,400 hours] – $3.00)/hour
= 3,400 hours x ($3.5294117 – $3.00)/hour
= 3,400 hours x $0.5294117/hour
= $1,800U
$12,000
10,200
$1,800U
7. FB for Variable Overhead based on Inputs (i.e., based on actual
hours worked—see 6 above)
=
Total standard variable overhead applied for units
manufactured = 800 units x 4 hours/unit x $3/hour
=
Variable overhead efficiency variance
=
$10,200
9,600
$ 600U
Alternative formula for variable overhead efficiency variance:
Variance = SP x (AQ – SQ)
= $3.00/hour x (3,400 – 3,200) hours
= $3.00/hour x 200 hours = $600U
8. Actual fixed overhead (given)
Budgeted fixed overhead = 4,000 hours x $2.00/hour
Fixed overhead budget (spending) variance
9. Budgeted fixed overhead (see 8 above)
Fixed overhead applied to units manufactured
= 800 units x 4 hours/unit x $2.00/hour
Fixed overhead production volume variance
$8,800
8,000
$ 800U
=
$8,000
=
=
Alternative formulae for fixed overhead production volume variance:
Variance = SP x (Denominator activity level – SQ)
= $2.00/hour x (4,000 hours – 3,200 hours)
= $2.00/hour x 800 hours = $1,600U
Variance = SP x (Denominator volume – Actual Units Produced)
= $8.00/unit x (1,000 units – 800 units) = $1,600U
6,400
$1,600U
14-58 Straightforward Four-Way Analysis of Total Overhead Variance (40–45
minutes)
The following solution is based on the model presented in text Exhibit
14.18.
1. and 2.
Actual
Variable Overhead
= (AQ x AP) =
$108,500
Total Variable Overhead
Variance = $6,500 U
Applied Variable
Overhead
= (SQ x SP)
$102,000
Spending Variance
= AQ x (AP – SP)
= $5,300U
Flexible Budget
Based on Inputs
(Actual Machine
Hours) = (AQ x
SP) = $103,200
Flexible Budget
Based on Output
(Standard Machine
Hours) = (SQ x SP)
$102,000
Efficiency
Variance =
SP x (AQ x SQ)
= $1,200U
$0--These two are
always equal
Legend: SQ = standard labor hours allowed for units produced = 8,500 units x 2 hours/unit =
17,000 hours
AQ = actual labor hours worked for units produced = 17,200
SP = standard variable overhead cost per labor hour = ($135,000 x 0.80)/(9,000
units x 2 hours/unit) = $108,000/18,000 hours = $6.00/hour
AP = actual variable overhead cost per labor hour = $6.3081 (rounded)
Total Variable Overhead Variance = Spending Variance + Efficiency Variance
1
14-58 (Continued)
3. and 4.
Actual Fixed
Overhead
$28,000
Spending Variance
= $1,000U
Total Fixed
Overhead
Variance = $5,050U
Budgeted Fixed
Overhead (“Lump
Sum”) $27,000
Applied Fixed
Overhead = (SQ x SP)
= $22,950
Production Volume
Variance = SP x
(Denominator Volume
– SQ) = $4,050U
Legend: SQ = standard DLH allowed for units produced = 8,500 units x 2 hours/unit =
17,000 hours
SP = standard fixed overhead cost per DLH = ($135,000 x 0.20)/(10,000 units x 2
hours/unit) = $27,000/20,000 DLHs = $1.35/DLH
Denominator Volume = number of DLHs used to calculate the predetermined
fixed overhead application rate = 10,000 units x 2 hours/unit = 20,000 DLHs
Total Fixed Overhead Variance = Spending (Budget) Variance + Production
Volume Variance
2
5. If the denominator activity level is set at budgeted (planned) output, the fixed overhead
application rate = Budgeted overhead/standard labor hours for planned output =
($135,000 x 0.20)/(9,000 units x 2 hours/unit) = $27,000/18,000 hours = $1.50/hour.
Volume variance = SP x (Denominator activity level – SQ)
= $1.50/hr. x (18,000 – [8,500 units x 2 hours/unit])
= $1.50/hr. x 1,000 hours = $1,500U
When budgeted (planned) output is used to determine the fixed overhead application
rate, the cost of unused capacity is allocated to the units produced. When practical
capacity is used to allocate budgeted fixed overhead costs to products, the resulting
product costs will be lower since the cost of unused capacity is reported separately (i.e.,
is not allocated to units produced). The separate reporting of the “cost of unused
capacity” is thought to inform managerial decisions regarding spending on capacityrelated resources.
3
14-60 Find the Unknowns, Four-Variance Analysis (45–50 minutes)
Case 1
Actual Operating Level and Costs Incurred
Actual machine-hours worked
Variable factory overhead incurred
Fixed factory overhead incurred
FB Based on Output (allowed machine hours)
Budgeted variable factory overhead
Budgeted fixed factory overhead
Total budgeted factory overhead
Standard cost data
Variable factory overhead rate per machine hour
Fixed factory overhead rate per machine hour
Denominator level (in machine hours)
Total standard machine hours for output achieved
Total standard variable factory overhead applied
Total standard variable overhead for the actual MH
Total standard fixed factory overhead applied
Factory Overhead Variances
Variable factory overhead spending variance
Variable factory overhead efficiency variance
Fixed factory overhead spending variance
Fixed factory overhead production volume variance
A
600 K
$7,500 L
$11,400 M
Case 2
Case 3
600 U
$3,960 W
$7,200
1,280
$6,850
$11,500
B $8,800 N $3,960 X
$10,000 O $8,000
C$18,800
$11,960 Y
$6,200
$16,500
$22,700
D $11.00
E $12.50 P
800 Q
F
800
$8,800 R
G $6,600 S
$10,000 T
$6.60
$5.00
$12.50 Z
$13.75
640
1,200
600 AA
1,240
$3,960 BB $6,200
$3,960 CC $6,400
$7,500 DD $17,050
$900U
H $2,200F
I $1,400U
J
$0
$0
$0
$800F EE
$500U
$450U
$200U
$5,000F
$550F
Case 1: Overhead Variance Summary
$7,500
$8,800
$8,800
$900U
Fixed overhead
$11,400
$10,000
4
$10,000/800
= $12.50/MH;
SQ x $12.50/MH
= $10,000
14-60 (Continued-1)
(B) (Flexible) budget for variable factory overhead = Total standard variable
overhead applied =
(C) Total (flexible) budget for factory overhead = $8,800 + $10,000 =
$8,800
$18,800
(G) Total variable overhead at actual MH = $7,500 – $900 =
$6,600
(E) Fixed overhead rate per MH = $10,000 ÷ 800 =
$12.50
(H) Variable overhead efficiency variance = $6,600 – $8,800 =
$2,200F
(F) Total standard MH for the units manufactured = $10,000 ÷ $12.50 =
800
(D) Standard variable overhead rate/MH = $8,800 ÷ 800 =
$11.00
(A) Actual MH spent = $6,600 (G) ÷ $11 (D) =
600
(I) Fixed overhead spending variance = $11,400 – $10,000 =
$1,400U
(J) Production volume variance = $10,000 (Budgeted) – $10,000 (Applied) =
$0
Case 2: Overhead Variance Summary
Variable overhead
$6.60 x 600
= $3,960
$6.60 x ?
$0
$3,960
$0
Fixed overhead
600 x ? = ?
$800F
$500U
(K) Actual machine-hours spent (same as total standard hours)
=
600
(N) Flexible (control) budget variable overhead = $6.60 x 600
=
$3,960
(R) Total standard variable overhead applied = (N)
=
$3,960
(L) Actual variable overhead cost incurred (in this case, same
as total standard variable cost applied to production)
=
$3,960
(S) Total variable overhead for the actual MH worked (in this
case, same as total standard variable cost applied to production) =
$3,960
5
14-60 (Continued-2)
(O)Total budgeted fixed overhead = $11,960 – $3,960 (N)
=
$8,000
(T) Total fixed overhead applied = $8,000 (O) – $500
=
$7,500
(P) Standard fixed overhead rate = $7,500 (T) ÷ 600
=
$12.50
(Q) Denominator level = $8,000 (O) ÷ $12.50 (P)
=
640
(M) Fixed factory overhead incurred = $8,000 (O) – $800
=
$7,200
Case 3: Overhead Variance Summary
Variable overhead
$5 x ?
$450 U
$5 x ?
$200 U
Fixed overhead
$11,500
$16,500
$550 F
(Z) Standard fixed overhead rate =
$16,500 ÷ 1,200 = $13.75
(DD) Total fixed overhead applied =
$16,500 + $550 = $17,050
(AA) Total standard machine-hours allowed for
the output achieved =
(BB)Total standard VOH applied
$17,050 (DD) ÷ $13.75 (Z) = 1,240
=
(X) Flexible-budget for variable overhead = (BB)
$5 x 1,240 (AA) = $6,200
=
$6,200
(CC) Total variable overhead for the actual MH worked = $6,200 (X) + $200 = $6,400
(U) Actual machine-hours spent =
$6,400 (CC) ÷ $5.00 = 1,280
(W) Actual variable overhead incurred =
$6,400 (CC) + $450 = $6,850
(Y)Total budgeted factory overhead =
$6,200 (X) + $16,500 = $22,700
(EE) Fixed factory overhead spending variance = $11,500 – $16,500 =
6
$5,000F