Flexible Budgets and Overhead Cost Variances Problems 3

FLEXIBLE BUDGETS AND OVERHEAD COST VARIANCES: problems and solutions
Page 264 to page 281 from Cost Accounting: A managerial Emphasis, Charles HORNGREN, S. DATAR
and M. RAJAN. Please, read the book and solve some problems. You can use a calculator in the exam.
8-18 Variable manufacturing overhead variance analysis. The French Bread Company bakes
baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct
materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on
the basis of standard direct manufacturing labor-hours. Following is some budget data for the French
Bread Company:
Direct manufacturing labor use 0.02 hours per baguette
Variable manufacturing overhead $10.00 per direct manufacturing labor-hour
The French Bread Company provides the following additional data for the year ended December 31,
2012:
Planned (budgeted) output 3,200,000 baguettes
Actual production 2,800,000 baguettes
Direct manufacturing labor 50,400 hours
Actual variable manufacturing overhead $680,400
Required
1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for
how many direct manufacturing labor-hours is French Bread budgeting?)
2. Prepare a variance analysis of variable manufacturing overhead. Use Exhibit 8-4 (p. 277) for
reference
Solution
Allocated: Budgeted:
Flexible-budget:
Budgeted input
Actual input quantity
Actual Costs quantity allowed for Standard Costs
X
actual output x
Budgeted rate
budgeted rate
1.Units 2 800 000 2 800 000 3 200 000
56 000 hours 64 000 hours
2.Total DL hours 50 400 hours 50 400 hours (0.02 x 2 800 000) (3 200 000x 0.02)
3.DL hour/unit (2/1)

0.018 0.02 0.02
$504 000 560 000 (0.02 x $640 000
4.Variable Overhead
$680 400 (50 400 x $10) 2800 000) x$10 (64 000 x $10)
costs
(2/5)
5.Va.Overhead costs $13.50 per $10 per hour $10 per hour $10 per hour
per hour (4/2) hour
Fixed costs $272 000 $256 000 $224 000 $256 000
(4 x 56 000) (4 x 64 000)
Flexible Variable Overhead Variance = $680 400 - $560 000 = 120 400 U
Variable overhead efficiency variance = (56 000 -50 400) x $10 per hour = $56 000 F or
Variable overhead efficiency variance = 504 000 -560 000 = $56 000 F
Spending Variable Overhead Variance = 680 400 – 504 000 = $176 400 U
Flexible Variable overhead Variance = 176 400 U + 56 000 F = $120 400 U
8-19 Fixed manufacturing overhead variance analysis (continuation of 8-18). The French Bread
Company also allocates fixed manufacturing overhead to products on the basis of standard direct
manufacturing labor-hours. For 2012, fixed manufacturing overhead was budgeted at $4.00 per direct
manufacturing labor-hour. Actual fixed manufacturing overhead incurred during the year was
$272,000.
Required
1. Prepare a variance analysis of fixed manufacturing overhead cost. Use Exhibit 8-4 (p. 277) as a guide.
2. Is fixed overhead underallocated or overallocated? By what amount?
Solution
Fixed overhead costs spending variance : $272 000 - $256 000 = $16 000 U
Fixed overhead costs production-volume variance = $256 000 -$224 000 = $32 000 U
Underallocated fixed cost = 272 000 -224 000 = $48 000
Problem for Self-Study

From page 287
Flexible-budget
Actual input quantity Budgeted input
Actual Costs X quantity allowed for Standard Costs
Budgeted rate actual output x
budgeted rate
1.Units 4 800 4 800 5 000
7 200 7 500
2.Total DL hours 8 400 8 400 (4 800 x 1.5) (5 000 x 1.5)
3.DL hour/unit
1.75 1.5 1.5
(2/1)
$1 680 000 $1 440 000 $1 000 000
4.Overhead costs $1 478 400 (8 400 x 200) (7 200 x 200) (5 000 x 200)
5.Overhead costs
$176 per hour $200 per hour $200 per hour $200 per hour
per hour (4/2)
Flexible Variance = $1 478 400 - $1 440 000 = $38 400 U
Variable overhead efficiency variance = (8 400 -7 200) x $200 per hour = $240 000 U or
Variable overhead efficiency variance = 1 680 000 -1 440 000 = $240 000 U
Spending Variance = 1 680 000 -1 478 400 = 201 600 F
Flexible Variance = 240 000 U + 201 600 F = $38 400 U

Flexible Budgets and Overhead Cost Variances Problems 3

Uploaded by

Copyright:

Available Formats

Flexible Budgets and Overhead Cost Variances Problems 3

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Flexible Budgets and Overhead Cost Variances Problems 3

Uploaded by

Copyright:

Available Formats

FLEXIBLE BUDGETS AND OVERHEAD COST VARIANCES: problems and solutions

3.DL hour/unit (2/1)

Flexible Variable overhead Variance = 176 400 U + 56 000 F = $120 400 U

Underallocated fixed cost = 272 000 -224 000 = $48 000

Problem for Self-Study

Spending Variance = 1 680 000 -1 478 400 = 201 600 F

Flexible Variance = 240 000 U + 201 600 F = $38 400 U

You might also like