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

EXERCISES

14-30 Variable Factory Overhead Variances (2025 minutes)

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

= \$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

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

Cr. Variable Overhead Spending Variance \$ 600

To Record Unfavorable Variable Overhead Efficiency Variance:

Dr. Variable Overhead Efficiency Variance \$1,800

\$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:

BudgetedTotalDirectLaborHours

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

Standard fixed factory overhead rate per direct labor hour:

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

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

= \$600F + \$2,000U = \$1,400U

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

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

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

Variable overhead spending variance \$ 600F

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

Fixed overhead production volume variance \$3,600U

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:

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:

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

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

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

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

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:

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

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

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