Flexible Budget

PROBLEM 1
Lindon Company's flexible budget for variable manufacturing overhead is given below:
Cost
Formula 6,000 8,000 10,000
Overhead costs per DLH DLHs DLHs DLHs
Supplies........................ $0.20 $1,200 $1,600 $2,000
Indirect labor................ 0.50 3,000 4,000 5,000
Utilities......................... 0.05 300 400 500
Total overhead cost...... $0.75 $4,500 $6,000 $7,500
During a recent period, the company produced 2,500 units of product using 7,600
direct labor-hours (DLHs). The standard allows 3 direct labor-hours per unit. Actual
variable overhead costs incurred were:
Supplies.............................. $1,900
Indirect labor...................... 3,040
Utilities............................... 570
Total overhead cost............ $5,510
The company had originally budgeted to produce 2,600 units during the period using
7,800 direct labor-hours.
Required:
Prepare a performance report for the period showing only the spending
variances for each overhead cost category
PROBLEM 2
Layt Clock Company has developed the following flexible budget for its overhead costs.
Manufacturing overhead at Layt is applied to production on the basis of standard
machine-hours:
Machine Hours
21,600 24,000 26,400
Clocks produced.................... 18,000 20,000 22,000
Variable overhead cost.......... $127,440 $141,600 $155,760
Fixed overhead cost.............. $171,072 $171,072 $171,072
Layt was expecting to produce 22,000 clocks last year. The actual results for the year
were as follows:
Number of clocks produced........... 21,500

Machine-hours incurred................. 24,940
Variable overhead cost................... $145,899
Fixed overhead cost....................... $170,540
Required:
Compute all four manufacturing overhead variances for Layt.

PROBLEM 3
Cajun Candy Corporation manufactures giant gourmet suckers. The cost standards developed
by Cajun appear below. Manufacturing overhead at Cajun is applied to production on
the basis of standard direct labor-hours:
Standard Standard cost Standard

quantity per ounce or cost per
per sucker hour sucker
0.75
Direct materials.............................. ounces $20.00 $15.00
Direct labor.................................... 1.2 hours $12.00 14.40
Variable overhead.......................... 1.2 hours $3.00 3.60
Fixed overhead............................... 1.2 hours $5.00 6.00
Total standard cost per sucker........ $39.00
The standards above were based on an expected annual volume of 8,000 suckers. The
actual results for last year were as follows:
Number of suckers produced........................................... 8,200

Direct labor-hours incurred............................................. 10,000
Ounces of direct materials purchased.............................. 7,900
Ounces of direct materials used in production................ 6,070
Total cost of direct materials purchased.......................... $156,815
Total direct labor cost...................................................... $122,800
Total variable overhead cost............................................ $28,600
Total fixed overhead cost................................................ $47,500
Required:
Compute the following variances for Cajun.
a. Materials price variance.
b. Materials quantity variance.
c. Labor rate variance.
d. Variable overhead spending variance.
e. Variable overhead efficiency variance.
f. Fixed overhead budget variance.
PROBLEM 4
Pierce Company uses a standard cost system in which it applies manufacturing overhead to
its product on the basis of standard direct labor-hours (DLHs). Below is the standard
cost card for the product:
Direct materials, 4.5 feet at $3.80 per foot...................... $17.10

Direct labor, 3.0 DLHs at $9.50 per DLH....................... 28.50
Variable overhead, 3.0 DLHs at $2.00 per DLH............. 6.00
Fixed overhead, 3.0 DLHs at $8.00 per DLH................. 24.00
$75.60
Last year, the company produced 6,000 units of product using 17,000 direct labor-
hours. The actual total fixed overhead cost for the year was $140,000 and the volume
variance was $12,000, favorable.
Required:
a. Compute the total fixed overhead cost that was originally budgeted.
b. Compute the denominator activity figure that the company used in computing
predetermined overhead rates.

Flexible Budget

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What are the four types of variances that can occur in overhead costs?

What information is needed to calculate the variances?

PROBLEM 1

Number of clocks produced........... 21,500

Compute all four manufacturing overhead variances for Layt.

Standard Standard cost Standard

Number of suckers produced........................................... 8,200

Direct materials, 4.5 feet at $3.80 per foot...................... $17.10

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