8-25 (40−50 min.) Total overhead, 3-variance analysis.
1. This problem has two major purposes: (a) to give experience with data allocated on a total
overhead basis instead of on separate variable and fixed bases and (b) to reinforce distinctions
between actual hours of input, budgeted (standard) hours allowed for actual output, and
denominator level.
An analysis of direct manufacturing labor will provide the data for actual hours of input
and standard hours allowed. One approach is to plug the known figures (designated by asterisks)
into the analytical framework and solve for the unknowns. The direct manufacturing labor
efficiency variance can be computed by subtracting $512 from $3,512. The complete picture is
as follows:
Actual Costs
Incurred
(5,120 hrs. × $25.10)
$128,512*
Actual Input Quantity
× Budgeted Rate
(5,120hrs. × $25.00*)
$128,000
$512 U*
Price variance
Flexible Budget:
Budgeted Input
Quantity Allowed
for Actual Output
× Budgeted Rate
(5,000 hrs. × $25.00*)
$125,000
$3,000 U
Efficiency variance
$3,512 U*
Flexible-budget variance
*
Given
Direct Labor calculations
Actual input × Budgeted rate = Actual costs – Price variance
= $128,512 – $512 = $128,000
Actual input = $128,000 ÷ Budgeted rate = $128,000 ÷ $25 = 5,120 hours
Budgeted input × Budgeted rate = $128,000 – Efficiency variance
= $128,000 – $3,000 = $125,000
Budgeted input = $125,000 ÷ Budgeted rate = $125,000 ÷ 25 = 5,000 hours
Production Overhead
Variable overhead rate
Budgeted fixed
overhead costs
= $43,200* ÷ 3,600* hrs. = $12.00 per standard labor-hour
= $103,400* – (4,000* × $12.00) = $55,400
If total overhead is allocated at 120% of direct labor-cost, the single overhead rate must
be 120% of $25.00, or $30.00 per hour. Therefore, the fixed overhead component of the rate
must be $30.00 – $12.00, or $18.00 per direct labor-hour.
8-21