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Chapter 11 Solution - Cost Accounting

The document presents information about overhead variances for two cases, A and B. For case A, key details include actual production of 6,000 units, an unfavorable variable overhead spending variance of $7,500, and a favorable fixed overhead volume variance of $126,000. For case B, key details are a budgeted production of 1,000 units but actual production of only 800 units, resulting in an underapplied variable overhead of $6,400 and an underapplied fixed overhead of $18,720.

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3K views8 pages

Chapter 11 Solution - Cost Accounting

The document presents information about overhead variances for two cases, A and B. For case A, key details include actual production of 6,000 units, an unfavorable variable overhead spending variance of $7,500, and a favorable fixed overhead volume variance of $126,000. For case B, key details are a budgeted production of 1,000 units but actual production of only 800 units, resulting in an underapplied variable overhead of $6,400 and an underapplied fixed overhead of $18,720.

Uploaded by

Joy T
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 8

PROBLEM 11-35 (45 MINUTES)

(1)
ACTUAL VARIABLE
OVERHEAD
Actual
Hours
(AQ)

8,500
hours

Actual
Rate
(AVR)
$12
per
hour*

$102,000

VARIABLE-OVERHEAD SPENDING AND EFFICIENCY VARIANCES


(Hours = Direct-Labor Hours)
(2)
(3)
(4)
VARIABLE OVERHEAD
FLEXIBLE BUDGET:
APPLIED TO
VARIABLE OVERHEAD
WORK-IN-PROCESS
Standard
Standard
Actual
Standard
Standard
Allowed
Allowed x Standard
x
x Rate
Hours
Rate
Hours
Hours
Rate
(AQ)
(SVR)
(SVR)
(SQ)
(SQ)
(SVR)
8,500
hours

$11
per
hour

8,000
hours

$93,500
$8,500 Unfavorable
Variable-overhead
spending variance

*Actual variable-overhead rate (AVR) =

$11
per
hour

8,000
hours

$88,000

$11
per
hour

$88,000

$5,500 Unfavorable
Variable-overhead
efficiency variance

No difference

actual variable overhead cost


$102,000
=
= $12 per direct - labor hour
actual direct labor hours
8,500

Column (4) is not used to compute the variances. It is included to point out that the flexible-budget amount for variable
overhead, $88,000, is the amount that will be applied to Work-in-Process Inventory for product costing purposes.

FIXED-OVERHEAD BUDGET AND VOLUME VARIANCES


(Hours = Direct-Labor Hours)
(1)
(2)
(3)
ACTUAL
BUDGETED
FIXED OVERHEAD
FIXED
FIXED
APPLIED TO
OVERHEAD
OVERHEAD
WORK IN PROCESS
Standard
Standard
FixedAllowed Overhead
Hours
Rate
8,000
$18.00 per

hours
hour
$145,000

$162,000*

$144,000

$17,000 Favorable

$18,000 U

Fixed-overhead
budget variance

Fixed-overhead
volume variance

*Budgeted fixed overhead = 9,000 direct-labor hrs. $18 per hour.

Some accountants would designate a positive volume variance as "unfavorable."


PROBLEM 11-37 (40 MINUTES)
1.

a.

b.
c.
d.
e.

Units produced during March.....................................................


Overhead application rate per unit
(budgeted overhead per unit at expected level of output).....
Applied overhead costs...............................................................
Variable-overhead spending variance........................................
Fixed-overhead budget variance................................................
Variable-overhead efficiency variance.......................................
Fixed-overhead volume variance................................................

66,000
$12
$792,000
$ 300
12,000
17,700
36,600

*U denotes unfavorable; F denotes favorable.

Some accountants would designate a negative volume variance as "favorable."

Supporting calculations are presented in the following schedule:

U*
U
F
F

Variable Overhead
Indirect material.............
Indirect labor.................

Actual
Spending
Overhead Variance
$222,000
150,000

Machine hours*..............
$372,000

Fixed Overhead
Supervision....................
Utilities...........................
Depreciation..................

$300 U

Projected
Overhead
$.68
.50
$1.18
315,000
$ 371,700

Flexible
Budget
Efficiency (Applied
Variance Overhead)
$.68
.50
$1.18
330,000
$17,700 F $ 389,400

Actual
Overhead
$102,000
108,000
168,000

Budget
Variance

Flexible
Budget
$108,000
90,000
168,000

Volume
Variance

Applied
Overhead
$.36
.30
.56
$1.22
330,000

$378,000

$12,000 U

$366,000

$36,600 F**

$ 402,600

Machine hours*..............

*3,600,000 machine hrs / 720,000 units = 5 hrs per unit; 5 x 66,000 units = 330,000 hrs
**SOME ACCOUNTANTS WOULD DESIGNATE A NEGATIVE
VOLUME VARIANCE AS FAVORABLE.
3.

The graph differs from the exhibit in the text, because in Wilmington Composites case,
the efficiency variance is favorable. The example in the text included an unfavorable
efficiency variance.

PROBLEM 11-39 (25 MINUTES)


1.

Let X = budgeted fixed overhead


X 2,000 machine hours = $20.00 per hour
X = $40,000

2.

Variable-overhead spending variance:


Actual machine hours x actual rate
2,200 hours x $11.50*... $ 25,300
Actual machine hours x standard rate
2,200 hours x $12.00.
26,400
Variable-overhead spending variance... $ 1,100 Favorable

* $25,300 2,200 hours


3.

Fixed-overhead volume variance:


Budgeted fixed overhead
Standard machine hours allowed x standard rate
750 hours* x $20.00
Fixed-overhead volume variance

$ 40,000
15,000
$ 25,000 U

* 1,500 units x .5 machine hours per unit

The fixed-overhead volume variance is positive;


some managerial accountants would interpret it as
an unfavorable variance.
4.

Lackawanna Licorice Company spent more than anticipated. Actual fixed


overhead amounted to $50,500 ($75,800 - $25,300) when the budget was set at
$40,000. The fixed-overhead budget variance is $10,500 unfavorable ($50,500 $40,000).

5.

Variable overhead is underapplied by $16,300:


Actual overhead: Actual machine hours x actual rate
2,200 hours x $11.50.. $ 25,300
Applied overhead: Standard machine hours allowed x
standard rate
750 hours x $12.00.
9,000
Underapplied variable overhead... $ 16,300

Without having complete information, it is difficult to be 100% certain.


However, by an analysis of data related to the volume variance, a lengthy strike
appears to be a strong possibility. Lackawanna had planned to work 2,000
machine hours during the period, giving the company the capability of
producing 4,000 finished units (2,000 hours x 2 units per hour). Actual
production amounted to only 1,500 units, leaving the firm far shy of its
production goal. A strike is a plausible explanation
PROBLEM 11-45 (45 MINUTES)
Missing amounts for case A:
2.

$21.00a per direct-labor hour

3.

$28.50b per direct-labor hour

6.

$294,150c

9.

$7,500 Ud

10.

$9,000 Fe

11.

$(126,000) (Negative)f (The negative sign means that applied fixed overhead
exceeded budgeted fixed overhead.)

12.

$24,150 underappliedg

13.

$135,000 overappliedh

16.

6,000 unitsi

19.

$270,000j

20.

$756,000k
Explanatory notes for case A:

Budgeted direct-labor hours


= budgeted production standard direct-labor hours per unit
= 5,000 units 6 hrs. = 30,000 hrs.
Fixed overhead rate =
=

budgeted fixed overhead


budgeted direct - labor hours
$630,000
$21per direct - labor hr.
30,000 hrs.

Total standard overhead rate


= variable overhead rate + fixed overhead rate
= $7.50 + $21.00 = $28.50

Variable-overhead spending variance


= actual variable overhead (actual direct-labor hours
standard variable overhead rate)
$16,650 U = actual variable overhead (37,000 direct-labor hrs
$7.50)
Actual variable overhead = $294,150

Variable-overhead efficiency variance


= SVR(AQ SQ)
= $7.50(37,000 direct-labor hrs 36,000 direct-labor hrs)
= $7,500 U

Fixed-overhead budget variance


= actual fixed overhead budgeted fixed overhead
= $621,000 $630,000
= $9,000 F

Fixed-overhead volume variance


= budgeted fixed overhead applied fixed overhead
= $630,000 (36,000 direct-labor hrs $21)
= $126,000 F
(Some accountants would designate a negative volume variance
as favorable.)

Underapplied variable overhead


= actual variable overhead applied variable overhead
= $294,150 (36,000 direct-labor hrs $7.50)
= $24,150 underapplied

Overapplied fixed overhead


= actual fixed overhead applied fixed overhead
= $621,000 (36,000 direct-labor hrs $21)
= $135,000 overapplied

Actual production

standard allowed direct-labor hours


standard hrs. per unit

36,000
6,000 units
6

Applied variable overhead


= SQ SVR
= 36,000 direct-labor hrs $7.50
= $270,000

Applied fixed overhead


= SQ fixed overhead rate
= 36,000 direct-labor hrs $21
= $756,000

Missing amounts for case B:


1.

$4.00a per direct-labor hour

2.

$9.00b per direct-labor hour

4.

$25,600c

5.

$72,000d

6.

$32,000e

7.

$76,320f

12.

$6,400 underappliedg

13.

$18,720 underappliedh

14.

1,000 unitsi

16.

800 unitsj

19.

$25,600k

20.

$57,600l

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