DOC

Chapter 14 The Flexible Budget and Factory Overhead

By Arthur Bryant,2014-03-19 03:32
12 views 0
Chapter 14 The Flexible Budget and Factory Overheadthe,and,The,And

    STUDENT SOLUTIONS MANUAL

    CHAPTER 14: FLEXIBLE-BUDGETSFACTORY OVERHEAD

    EXERCISES

14-30 Variable Factory Overhead Variances (2025 minutes)

    1. Standard Variable factory overhead rate per direct labor hour:

    BudgetedTotalVariableFactoryOverhead BudgetedTotalDirectLaborHours

     = $15,000/2,500 hours = $6.00 per direct-labor hour

     Standard direct-labor hours per unit:

    BudgetedTotalDirectLaborHours

     BudgetedTotalUnits

     = 2,500 hours/5,000 units = 0.50 hours/unit

    Variable Overhead Variance Analysis

     FB Based on FB Based on

     Actual Cost Inputs Output

     (AQ x AP) (AQ x SP) (SQ x SP)

    2,700 hrs. x $5.7777/hr. 2,700 x $6.00/hr. (4,800 x 0.5) x $6.00/hr.

     = $15,600 = $16,200 = $14,400

     Spending variance Efficiency variance

     = $600 F = $1,800 U

     or, = AQ x (AP SP) or, = (AH SH) x SR

     = 2,700 x ($5.7777 - $6.00) = (2,700 2,400) x $6.00/hr.

     = $600F = $1,800U

     Flexible Budget

     Actual Cost Based on Output

     $15,600 $14,400

     Flexible-budget variance = $15,600 $14,400

    = $1,200U

    Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-1 ?The McGraw-Hill Companies, 2008

     STUDENT SOLUTIONS MANUAL

14-30 (Continued)

2. To Record Favorable Variable Overhead Spending Variance:

     Dr. Factory Overhead (or, Variable Factory

     Overhead) $ 600

     Cr. Variable Overhead Spending Variance $ 600

     To Record Unfavorable Variable Overhead Efficiency Variance:

     Dr. Variable Overhead Efficiency Variance $1,800

     Cr. Factory Overhead (or, Variable Factory Overhead)

     $1,800

3. The factory had a favorable variable factory overhead spending variance. This

    could be a result of conscientious efforts of workers and the manager of the factory

    in conserving uses of variable factory items. Alternatively, it could have been due,

    at least in part, to the use of an inappropriate activity measure (direct labor-hours)

    for assigning variable factory overhead costs.

     The $1,800 unfavorable variable overhead efficiency variance is a result of using

    more direct labor hours to manufacture the output of the period (2,700 hours to

    make 4,800 units of output) than the standard labor hours allowed (2,400 hours) for

    this level of output. As long as direct labor hours worked is related to variable

    overhead costs incurred, then the efficiency variance indicates the cost to the

    company (in terms of variable overhead) of using 300 extra labor hours this period.

     The $1,200 unfavorable flexible-budget variance indicates that the firm did not

    exercise good overall control regarding variable factory overhead costs. Again, this

    is a valid conclusion provided that direct labor-hour is a reasonably good activity

    measure for the consumption of variable factory overhead cost.

Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-2 ?The McGraw-Hill Companies, 2008

     STUDENT SOLUTIONS MANUAL

14-32 Three-Variance Factory Overhead Analysis (2025 minutes)

    1. Standard Variable factory overhead rate per direct labor hour:

    BudgetedTotalVariableFactoryOverhead

     BudgetedTotalDirectLaborHours

     = $15,000/2,500 hours = $6.00/DLH

    Standard fixed factory overhead rate per direct labor hour:

    BudgetedTotalFixedFactoryOverhead

     PracticalCapacityLaborHours

     = $90,000/2,500 hrs. = $36.00/DLH

    Standard factory overhead rate per direct labor hour (DLH) $42.00/DLH

     Standard direct-labor hours (DLH) per unit:

    PracticalCapacityLaborHours

    ;0.5DLHperunit

    PracticalCapacity,inUnits

    Three-Variance Overhead Analysis

     Flexible Budget Flexible Budget

     Based on Inputs Based on Output Applied

     Actual Cost AQ x SP (SQ x SP) (SQ x SP)

     $ 15,600 2,700 x $6 =$ 16,200 2,400 x $6 = $14,400

     + 92,000 + 90,000 + 90,000 2,400 x $42

     $107,600 $106,200 $104,400 = $100,800

     Spending variance Efficiency Variance Production Volume

     Variance

     = $107,600 $106,200 = $106,200 $104,400 = $104,400 $100,800

     = $1,400U = $1,800 U = $3,600U

Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-3 ?The McGraw-Hill Companies 2008

     STUDENT SOLUTIONS MANUAL

14-32 (Continued)

    2. Total overhead spending variance = variable overhead spending variance + fixed

    overhead spending variance

     = $600F + $2,000U = $1,400U

     Total overhead efficiency variance = variable overhead efficiency variance

     = $1,800U (that is, there is no fixed overhead efficiency variance)

     Production Volume Variance = $3,600U (the same as under the four-way analysis

    of the overhead variance)

     In sum, the only difference between the three-way and four-way analysis is that in

    the former, the spending variances for fixed and for variable overhead (reported in

    the latter) are combined into a single overhead spending variance.

    Three- and Four-Variance Factory Overhead Analysis: Summary

    Factory overhead spending variance:

     Variable overhead spending variance $ 600F

     Fixed overhead spending variance 2,000U $1,400U

    Factory overhead efficiency variance:

     Variable overhead efficiency variance $1,800U

    Factory overhead production volume variance:

     Fixed overhead production volume variance $3,600U

     Total Overhead Variance = $6,800U

Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-4 ?The McGraw-Hill Companies, 2008

     STUDENT SOLUTIONS MANUAL

14-34 Factory Overhead Variance: Four Variance Analysis (40 Minutes)

1. Total Factory Overhead Application Rate:

     Fixed factory overhead application rate:

     Total machine hours at practical capacity:

     Number of units of output at practical capacity = 40,000

     Machine hours per unit x 2 Standard machine hours @ practical capacity 80,000

     Fixed factory overhead rate per machine hour = budgeted

     Fixed Overhead/machine hours @ practical capacity =

     $360,000/80,000 machine hours = $4.50

     Variable factory overhead rate per machine hour (given) + 3.00

     Total overhead application rate per machine hour $7.50

    2. Total Flexible Budget (FB) for Overhead Based on Units Produced:

     Total standard machine hours allowed for the units produced

     42,000 units produced x 2 machine hours per unit = 84,000 hours

     Manufacturing overhead in the flexible budget for 42,000 units:

     Variable factory overhead = $3.00/hr. x 84,000 hrs. = $252,000

     Fixed factory overhead (―lump-sum‖ amount) 360,000

     Total FB for Overhead based on Units Produced $612,000

    3. Production Volume Variance for 2007:

     Fixed Overhead:

     Actual Cost Budget Applied

     $360,000 $378,000

     = 84,000 hrs. x $4.50/hr.

     Production volume variance

     = $360,000 $378,000

     = $18,000F

     or, Production Volume Variance = SP x (Denominator Volume SQ)

     = $4.50/machine hr. x (80,000 84,000) machine hours

     = $18,000F

    Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-5 ?The McGraw-Hill Companies 2008

     STUDENT SOLUTIONS MANUAL

14-34 (Continued-1)

4. & 5. FB Based on FB Based on

     Actual Inputs Output Applied

     VOH $3 x 85,000 hrs. $3 x 84,000 hrs. $3 x 84,000

    hrs.

     = $255,000 = $252,000 = $252,000

     FOH $4.50 x 84,000 hrs.

     360,000 360,000 = 378,000

     $625,000 $615,000 612,000 $630,000

     Spending Variance Efficiency Variance Prod. Volume Variance

     = $625,000 $615,000 = $615,000 $612,000

     = $10,000U = $3,000U

     Total factory overhead incurred $625,000

     FB for Overhead Based on Inputs (i.e., actual machine hours):

     Variable factory overhead: 85,000 x $3 = $255,000

     Fixed factory overhead: 360,000 615,000

     Factory overhead spending variance $ 10,000U

    5. FB for Overhead Based on Inputs (i.e., actual machine hours) $615,000

     FB for Overhead Based on Output (from 2. above) 612,000

     (Variable) Factory Overhead Efficiency Variance $ 3,000U

     or, Efficiency Variance = SP x (AQ SQ)

     = $3.00/machine hr. x (85,000 84,000) hours

     = $3,000U

    Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-6 ?The McGraw-Hill Companies, 2008

     STUDENT SOLUTIONS MANUAL

14-34 (Continued-2)

     FB Based FB Based

     on Inputs on Output

    6. Actual (AQ x SP) (SQ x SP) Applied

     VOH $250,000 $255,000 $252,000

     Spending Variance Efficiency Variance

     = $250,000 $255,000 = $255,000 $252,000

     = $5,000F = $3,000U

     FOH $375,000 $360,000 $378,000

     Spending (Budget) Variance Production Volume Variance

     = $375,000 $360,000 = $360,000 $378,000

     = $15,000F = $18,000F

    An Excel spreadsheet solution file for this assignment is embedded below. You can

    open this ―object‖ by doing the following:

    1. Right click anywhere in the worksheet area below.

    2. Select ―worksheet object‖ and then select ―Open.‖

    3. To return to the Word document, select ―File‖ and then ―Close and return

    to...‖ while you are in the spreadsheet mode. The screen should then

    return you to the Word document.

14-34: Walkenhorst Company

    Input Data

    Practical Capacity =40,000units

    Standard Machine hours per Unit =2

    Standard Variable Overhead Application Rate =$3.00per machine hour

Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-7 ?The McGraw-Hill Companies 2008

     STUDENT SOLUTIONS MANUAL

14-36 Three-Variance and Two-Variance Analyses (10-15 minutes)

    1. a. Total factory overhead spending variance:

     Variable overhead spending variance (see 3a, 14-35) $ 620F

     Fixed overhead spending variance (see 3a, 14-35) 500F

     Factory overhead spending variance $1,120F

     b. Factory overhead efficiency variance (see 3b, 14-35) $480U

     or, VOH efficiency variance = SP x (AQ SQ)

     = $3.20/MH x (2,850 [10,800 units x 0.25MH/unit])

     = $3.20/MH x (2,850 2,700) MH

     = $3.20/MH x 150 MH = $480U

     c. Production volume variance (see 3c, 14-35) $680U

     2. a. Factory overhead controllable (flexible-budget) variance:

     Factory overhead spending variance (1a, above) $1,120F

     Factory overhead efficiency variance (1b, above) 480U

     Factory overhead controllable variance (see 2, 14-35) $640F

     b. Production volume variance (see 3c, 14-35) $680U

3. In all cases (four-way, three-way, and two-way variance decompositions) the total

    overhead variance for the month of March is the same, $40U, as follows:

     Total factory overhead variance = total actual factory overhead factory overhead

    applied to production

     = $13,000 (10,800 units x 0.25 MH/unit x [$180,000/37,500MH])

     = $13,000 (10,800 units x 0.25 MH/unit x $4.80/MH)

     = $13,000 (2,700 MH x $4.80/MH)

     = $13,000 $12,960 = $40 U

Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-8 ?The McGraw-Hill Companies, 2008

     STUDENT SOLUTIONS MANUAL

14-38 Four-Variance Analysis of Total Overhead Variance (30 minutes)

     Fixed factory overhead application rate: $18,000 4,500 = $4.00/DLH

     Actual fixed factory overhead: $40,000 $24,150 = $15,850;

     Actual variable OH rate/DLH = $24,150/4,200DLHs = $5.75/DLH

     Standard Cost

     Flexible Budget Flexible Budget Applied to

     Actual Based on Inputs Based on Outputs Production

     (AQ x AP) (AQ x SP) (SQ x SP) (SQ x SP)

    Variable (4,200 x $5.75) (4,200 x $5.00) (4,000 x $5.00) (4,000 x $5.00) Overhead = $24,150 = $21,000 = $20,000 = $20,000

     Spending Efficiency N/A

     Variance = $3,150U Variance = $1,000U

     Lump-sum Lump-Sum Applied

     Actual Amount Amount (SQ x SP)

    Fixed (4,000 x $4.00)

    Overhead $15,850 $18,000 $18,000 = $16,000

     Spending N/A Production Volume

     Variance = $2,150F Variance = $2,000U

     (4,000 x $9.00)

     $40,000 $36,000

Total

    Overhead

     Total Overhead Variance = $4,000U (from a product-costing

     standpoint this is referred to as total underapplied overhead of $4,000)

Four-Variance Decomposition of Total Overhead Variance for December:

     (1) Variable Overhead Spending Variance = $3,150U

     (2) Variable Overhead Efficiency Variance = $1,000U

     (3) Fixed Overhead Spending Variance = $2,150F

     (4) Production Volume Variance = $2,000U

     Total Overhead Variance = $4,000U

    Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-9 ?The McGraw-Hill Companies 2008

     STUDENT SOLUTIONS MANUAL

14-40 Graphical AnalysisFixed Overhead Variances (3040 minutes)

    (A)

    (C)

    Slope of Line = (D) (H)

     (K)

    (J) (I)

     (L)

    (E)

    (B)

     (F) (G)

Solution:

     (A) = Fixed Overhead Cost (label)

     (B) = Machine Hours = Activity Measure for Applying Fixed Overhead Cost (label)

     (C) = Applied Fixed Overhead Cost

     (D) = Standard Fixed Overhead Application Rate (per Machine Hour)

     (E) = Budgeted Fixed Overhead (―Lump-Sum‖ Amount)

     (F) = Denominator Activity Level (for setting the fixed overhead allocation rate)

     (G) = Standard Allowed Machine Hours for Units Produced this Period

     (H) = Standard Fixed Overhead Applied to Units Produced = (G) x (D)

     (I) = Actual Fixed Overhead Costs Incurred During the Period

     (J) = Fixed Overhead Production Volume Variance (= D x (G F))

     (K) = Total Fixed Overhead Variance = (J) + (L)

     (L) = Fixed Overhead Spending (Budget) Variance = (I) - (E) Blocher, Stout, Cokins, Chen, Cost Management, 4/e 14-10 ?The McGraw-Hill Companies, 2008

Report this document

For any questions or suggestions please email
cust-service@docsford.com