Scribd
Upload
44 views

CH 15 Sol

This document discusses the analysis of total overhead variance using flexible budgeting. It provides details on calculating the variable overhead spending and efficiency variances, fixed overhead spending and production volume variances, and the journal entries to record these variances. It also explains that the production volume variance can represent the cost of unused capacity and that the spending variances result from imperfect budgeting and differences between actual and planned overhead spending.

Uploaded by

Anonymous MSetY7Icz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
44 views

CH 15 Sol

This document discusses the analysis of total overhead variance using flexible budgeting. It provides details on calculating the variable overhead spending and efficiency variances, fixed overhead spending and production volume variances, and the journal entries to record these variances. It also explains that the production volume variance can represent the cost of unused capacity and that the spending variances result from imperfect budgeting and differences between actual and planned overhead spending.

Uploaded by

Anonymous MSetY7Icz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

15-47 Four-Variance Analysis of Total Overhead Variance (60-75 minutes)

Variable factory overhead

Flexible Budget (FB) based FB Based on Output


on Inputs (i.e., hrs. worked) (i.e., allowed hours)
Actual (AQ SP) (SQ SP)
$352,000 440,000 SP SQ SP

Spending Variance Efficiency Variance

Fixed factory overhead


Budget Applied
Actual (Lump-Sum) (SQ SP)
200,000 units $3/unit
$575,000 = $600,000 396,000 SP

Spending Variance Production Volume


Variance

1.
a. Total units manufactured 198,000
Standard hours allowed per unit manufactured 2
Total standard hours for the units manufactured 396,000

b. Standard variable factory overhead rate per hour

Total budgeted factory overhead $900,000


Denominator activity (capacity level) 200,000
Fixed factory overhead rate per unit $ 3.00
Total budgeted fixed factory overhead $600,000
Total budgeted variable factory overhead $300,000
Total direct labor hours @ capacity (200,000 2) 400,000
Standard variable factory overhead rate per hour $0.75

Variable factory overhead efficiency variance


= (440,000 396,000) DLHs $0.75/DLH = $33,000U
c. Variable factory overhead incurred (given) = $352,000
FB based on Inputs = 440,000 DLHs $0.75/DLH = 330,000
Variable overhead spending variance $ 22,000U

d. Fixed factory overhead incurred (given) = $575,000


Budgeted fixed factory overhead = 600,000
Fixed factory overhead spending variance $ 25,000F

e. Total standard hours allowed for units manufactured = 396,000


Standard fixed overhead rate/DLH = $3.00 2 = $1.50
Total fixed factory overhead applied to production $594,000

Alternative computation:
Units manufactured (given) 198,000
Standard fixed factory overhead rate/unit (given) $3.00
Total fixed overhead applied $594,000

f. Total budgeted fixed factory overhead $600,000


Total applied fixed factory overhead $594,000
Fixed factory overhead production volume variance $ 6,000U

(2) Journal entries:


Dr. Variable Overhead 352,000
Cr. Accounts payable, etc. 352,000
To record actual variable overhead costs for the period.

Dr. WIP Inventory ($0.75 396,000) 297,000


Cr. Variable Overhead 297,000
To apply standard variable overhead costs to production for the period.

Dr. Variable Overhead Spending Variance 22,000


Dr. Variable Overhead Efficiency Variance 33,000
Cr. Variable Overhead 55,000
To record variable overhead variances for the period.
Dr. Fixed Factory Overhead 575,000
Cr. Accumulated depreciation, etc. 575,000
To record actual fixed overhead costs for the period.

Dr. WIP Inventory (396,000 $1.50) 594,000


Cr. Fixed Factory Overhead 594,000
To apply standard fixed overhead costs to production for the period.

Dr. Production Volume Variance 6,000


Dr. Fixed Factory Overhead 19,000
Cr. Fixed Overhead Spending Variance 25,000
To record fixed overhead variances for the period.
(3) One view of the production volume variance is an artifact of the product-costing
purpose of standard costing. To unitize budgeted fixed overhead for product-
costing purposes, a denominator activity level must be chosen over which the
budgeted fixed overhead costs can be spread. If the actual level of activity differs
from the level chosen to establish the fixed overhead application rate, a production
volume variance will occur. From a cost-control standpoint, the production volume
variance, particularly when the denominator activity level is defined as practical
capacity, can be thought of as representing the cost of unused capacity. As such,
this variance information can be monitored over time to help better manage the
supply of capacity-level resources.

The fixed overhead spending variance represents the difference between planned
(budgeted) fixed overhead costs and actual fixed overhead costs for the period. If
management desires, this total variance can be broken down on a line-item basis.

The variable overhead spending variance is partly attributable to the fact that the
measure(s) chosen to budget variable overhead costs are imperfect. In the present
case, a single activity measure, DLHs, is used to construct the flexible budget for
variable overhead cost. We know that such a simplification introduces error into the
variance-determination process. This variance is also attributable to spending on
overhead items being different from expectations. These variances (e.g., spending
on electricity) can theoretically be decomposed into price and quantity components,
much the same as we did in chapter 14 for direct manufacturing costs.
The variable overhead efficiency variance refers to the impact of manufacturing
overhead of efficiency or inefficiency in the use of the activity measure(s) used to
construct the flexible-budget for variable overhead. It is a misnomer, therefore, to
interpret this variance as measuring the effect of efficiencies/inefficiencies
associated with the consumption of individual variable overhead components. Note,
too, that this variance is affected by the strength of the relationship between
variable overhead cost and the activity measure(s) used to budget these costs for
control purposes. That is, a clean interpretation of this variance exists only if the
relationship between cost and activity is perfect.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy