MANAGERIAL ACCOUNTING chapter 10 1,2,3,4,5,6,7,19,22,27 and

5,800 hours ×

5,800 hours ×

5,600 hours ×

$$2.75 per hour*

$$2.80 per hour

$$2.80 per hour

= $$15,950

= $$16,240

= $$15,680

?

?

?

Variable overhead

Variable overhead

spending variance,

efficiency variance,

$$290 F

$$560 U

Total variance, $$270 U

*$$15,950÷

5,800 hours =$$2.75 per hour

Alternatively, the variances can be computed using the formulas:

Variable overhead spending variance:

AH (AR

–

SR) = 5,800 hours ($$2.75 per hour

–

$$2.80 per hour)

= $$290 F

Variable overhead efficiency variance:

SR (AH

–

SH) = $$2.80 per hour (5,800 hours

–

5,600 hours)

= $$560 U

Exercise 10-5

(45 minutes)

1. Fixed portion of the predetermined overhead rate:

2. Budget variance = Actual fixed overhead cost

–

Flexible budget fixed

overhead cost

Volume variance = Fixed portion of ×

(denominator hours

–

standard

predetermined rate

hours)

= $$8.00 per DLH (50,000 DLHs

–

48,000 DLHs)

= $$16,000 U

= $$394,000 - $$400,000 = $$6,000 F

Fixed overhead

?

Denominator level of activity

$$400,000/50,000 DLHS = $$8.00 per DLH

Note to instructors: students may benefit from the following reconciliation

of underapplied fixed overhead to the budget and volume variances.

Actual fixed overhead

$$394,000

Applied fixed overhead $$384,000

(48,000 hours ×

$$8 per hour)

Underapplied overhead

$$

10,000

Budget variance

Volume variance

Net

$$ 6,000 F

$$16,000 U

$$10,000 U

Recall from the chapter that underapplied overhead relates to unfavourable

variances.

Exercise 10-6

(20 minutes)

Jessel Corporation

Variable Overhead Performance Report

For the Year Ended December 31

Budgeted direct labour- hours

........................

Actual direct labour-hours

.............................

Standard direct labour-hours allowed

.

............

Actual

(1)

Costs

Indirect labour ...........

Overhead Costs

(per DLH)

Formula

Cost

Incurred

44,000

DLHs

$$0.90

(AH ×

$$42,000

AR)

Supplies

.....................

0.15

6,900

Electricity

...................

0.05

1,800

Total variable

overhead cost

.

.........

$$1.10

$$50,700

42,000

44,000

45,000

Flexible

(2)

Based on

Budget

44,000

DLHs

$$39,600

SR)

6,600

2,200

$$48,400

Flexible

(3)

Based on

Budget

45,000

(4)

DLHs

Total

Spending

$$40,500

SR)

Variance

$$1,500 U

(1)-(3)

Variance

$$2,400 U

(1)-(2)

6,750

150 U

300 U

2,250

450 F

400 F

$$49,500

$$1,200 U

$$2,300 U

Efficiency

Variance

$$ 900 F

(2)-(3)

150 F

50 F

$$1,100 F

(AH ×

(SH ×

Exercise 10-7

(30 minutes)

Material Variances

Equivalent units

To complete beginning W in P (10,000 units ×

0%) =

.

..... 0

Started and completed (40,000

–

12,000)

.

..............

28,000

Ending W in P (12,000 ×

100%)

.

................

12,000

Total units ......... .................................................. ..

40,000

Standard Cost of Materials Issued

A

620,000

×

.80

$$496,000

B

150,000

×

2.25

337,500

770,000

833,500

Actual material used at standard mix

A

15

607,895

×

.80

$$486,316

19

B

4

162,105

×

2.25

364,736

19

770,000

$$851,052

Standard materials for actual production

A

(40,000 ×

15)

×

.80

$$480,000

B

(40,000 ×

4)

×

2.25

360,000

$$840,000

Mix Variance

$$ 9,684 U A

27,236 F B

$$17,552 F

Yield Variance

$$ 6,316 U A

4,736 U B

$$11,052 U

Labour Variances

Equivalent units

To complete beginning W in P (10,000 ×

.70)

.

..........

7

,000

Started and completed (40,000

–

12,000)

.

..............

28,000

End W in P (12,000 ×

.60)

.

......... ..............................

7

,200

Total units .................................................. ...........

42,200

Exercise 10-7

(continued)

Actual labour costs

$$2,597,000

Std. Cost of actual hours

212,000 ×

$$12

Cost of actual production

42,200 ×

5 ×

$$12

2,544,000

2,532,000

$$53,000 U

Rate var.

$$12,000 U

Effic. Var.

Exercise 10-19

(30 minutes)

Material

b.

(1)

Material

Standard Cost

×

Actual Quantity

A

B

C

(1)

(2)

(1

–

2)

Actual Cost

Standard Cost

Price

×

Actual Quantity

Variance

$$647,130

($$4 ×

159,000)

$$11,130 U

580,204

($$8 ×

72,000)

4,204 U

870,000

($$20 ×

44,000)

10,000 F

$$ 5,334 U

(2)

Standard Usage

×

Standard Mix

×

Standard Cost

(1

–

2)

Usage

Variance

$$76,000 U

16,000 U

170,000 F

FF

$$78,000 F

A

($$4 ×

159,000) = $$636,000

140,000 ×

$$4

B

($$8 ×

72,000) = $$576,000

70,000 ×

$$8

C

($$20 ×

44,000) = $$880,000

52,500 ×

$$20

275,000

262,500

Actual production (litres)

................................ 175,000

x Standard input per litre (150 ÷

100) ................... 1.5

Total standard litres of input

........................... 262,500

*Standard usage at standard mix:

A

80/150 ×

262,500

= 140,000

B

40/150 ×

262,500

= 70,000

C

30/150 ×

262,500

= 52,500

Exercise 10-19

continued

c.

(1)

Actual

Quantity

(2)

(3)

(1

–

2)

(4)

(3 ×

4)

Mix

Variance

$$49,332 U

10,664 F

220,000 F

$$ 181,332 F

Actual Quantity at

Standard

Proportions

159,000

146,667 (80/150)

72,000

73,333 (40/150)

44,000

55,000 (30/150)

275,000

275,000

Standard

Cost

Difference

12,333 U

1,333 F

11,000 F

0

$$ 4

8

20

*(80 ×

$$4) + (40 ×

$$8) + (30 ×

$$20)/100 = $$12.40

Check:

Mix variance

$$181,332 F

Yield variance

103,333 U

Usage variance

$$77,999 F ($$1 rounding difference)

2b.

Labour efficiency variance:

d.

Actual yield (litres) ................................................. 175,000

Standard yield (275,000 litres ×

100 ÷

150) ............ 183,333.33

Difference

...... .................................................. .........

(

8,333.33)

x Cost per litre of output*

..............................................

$$

12.40

Yield vari ance.............................................. ......... $$103,333.29 U

[91,000 hours

–

(50 hours/100 litres ×

175,000) ×

$$20 = $$70,000 U

Part of the actual labour hours was used to transform the materials that

became part of the output yield loss. That amount is equal to:

1/2 hr

. ×

(8,333) litres ×

$$20 = $$83,330 U

Therefore, the production foreman is correct in arguing that his workers

are operating better than standard.

(SMAC Solution Adapted)