Flexible Budgets and Standard Costing QUESTIONS

Chapter 21 Flexible Budgets and Standard Costing QUESTIONS 1. Fixed budget performance reports have limited usefulness because they do not reflect differences in revenues and variable costs that can occur simply because actual volume is different from budgeted volume. This is a serious limitation when evaluating (benchmarking) the reasonableness of actual revenues and costs. 2. The primary purpose of a flexible budget is to help managers better evaluate past performance, which can improve their abilities to monitor and control operations. 3. The proper title is: Spalding Company Flexible Budget Performance Report For Year Ended December 31, 2013 The proper title communicates to the user the focus of the report. Although it may seem obvious, many reports used in the business world do not have a proper or descriptive title. The sooner a student begins to make this a routine task in completing assignments, the better skilled s/he will be for the business world. 4. A flexible budget performance report is useful for an analysis of the difference between actual performance and budgeted performance often called variance analysis. Its usefulness stems from the fact that both the budgeted and actual results are based on the same level of activity. 5. A variable cost implies a constant per unit cost for each unit produced or sold within the relevant range. 6. The human resource department is usually responsible for a labor rate variance. The production department is usually responsible for a labor efficiency variance. However, the two responsibilities may not be completely separate. For example, a favorable rate variance may have occurred because the human resource department hired poorly trained employees, in which case the production department used more hours than expected (resulting in an unfavorable efficiency variance) because of higher waste. 7. A price variance is that portion of a cost variance caused by a difference between the actual unit price of an item and its standard price. A quantity variance is that portion of a cost variance caused by a difference between the actual number of units of an item used and the standard number of units budgeted to be used. Solutions Manual, Chapter 21 1173

8. Standard costs are used to establish a basis to assess the reasonableness of actual costs. A comparison of standard costs to actual costs should help management identify unexpected differences and then pursue explanations as to why actual costs varied from the standard. 9. An overhead volume variance is the difference between (a) the amount of (fixed) overhead that would have been budgeted at the actual operating level achieved during the period (that is, budgeted fixed overhead) and (b) the standard amount of (fixed) overhead applied to actual products produced during the period. A volume variance occurs when the actual volume differs from the expected volume that is used to establish the predetermined rate. 10. A predetermined standard overhead rate is a measure computed and used in a standard cost system to assign overhead costs to products. Before the period begins, budgeted total overhead costs (variable and fixed) at the expected volume are divided by the expected amount of the allocation base (direct labor hours, machine hours, or some other measure of activity). This yields the predetermined standard overhead rate. Then as production activities occur, this predetermined overhead rate is applied to the standard quantity of output produced to establish the amount of overhead assigned to that output. 11. In general, variance analysis is said to provide information about price and quantity variances. 12. A controllable variance is the difference between (a) the total overhead cost actually incurred in the period and (b) the total overhead cost that would have been budgeted at the actual operating level achieved. Specifically, the controllable variance is the sum of the total variable overhead variances (both variable overhead spending and efficiency variances) and the fixed overhead spending variance. 13. Standard costs provide a basis for evaluating actual performance. Summary information comparing actual costs to budgeted costs is captured and reported in a flexible budget. The evaluation reports differences between actual costs and standard costs as variances. Variance analysis draws attention to situations where actual costs differ from standard costs. Management by exception can be used in performing variance analysis by focusing management s attention on the variances where actual costs are most different from standard costs. 14. Before a period starts, the manager can prepare flexible budgets for the various types of snowmobiles. Then, she could estimate both the best and worst case scenarios for the upcoming period. The manager can then adjust personnel or promotions, for instance, to help achieve acceptable results. After the period ends, the manager can use the flexible budget to determine how actual results compare to the plan for the achieved level of sales. 15. Apple schedules appointments with customers to service Apple computers, iphones, ipods etc. These service appointments require standard hours at standard rates to complete, depending on the type of service. Apple can calculate the price (rate) and quantity (efficiency) variances for these various services to maintain control over them. 1174 Financial & Managerial Accounting, 5th Edition

16. The controllable variance should not be affected by achieving an actual operating level different from the budgeted level. If the company operated at 75% of capacity, a controllable variance will arise only if the actual overhead cost is different from the amount shown on a flexible budget for overhead computed at the 75% level. In contrast, the volume variance is affected when the percent of actual capacity differs from that expected. If the company operated at less than planned (for example, at 75% instead of the 80% budgeted) the volume variance will be unfavorable. This means that the company will not apply as much overhead to each unit or job as planned. Stated differently, each job or unit will be undercosted. Quick Study 21-1 (15 minutes) QUICK STUDIES BEECH COMPANY Flexible Budget Performance Report For Month Ended May 31 Flexible Actual Budget Results Variances Sales... $1,300,000 $1,275,000 $25,000 U Variable costs... 750,000 712,500 37,500 F Contribution margin... 550,000 562,500 12,500 F Fixed costs... 300,000 300,000 0 Income from operations... $ 250,000 $ 262,500 $12,500 F Quick Study 21-2 (5 minutes) A standard cost card for one bat would include: Direct materials (1 kg. @$18 per kg.)... $18 Direct labor (0.25 hours @$20 per hour)... 5 Overhead (0.25 labor hours $40 per hour)... 10 Total... $33 Solutions Manual, Chapter 21 1175

Quick Study 21-3 (5 minutes) Actual cost for one bat... $40 Standard cost for one bat (from QS 21-2)... 33 Cost variance... $ 7 As the actual costs are greater than the standard costs, the cost variance is unfavorable. Quick Study 21-4 (10 minutes) 1. Management by exception involves managers focusing on the most significant variances for analysis and action strategies. It also results in less attention given to areas where performance is close enough to the standard to be satisfactory. This means management concentrates on the exceptional or irregular situations and defers dealing with areas that report actual results reasonably close to the plan. 2. Management often uses standard costs to compute these variances. Since standard costs are used by managers to focus on the areas in which actual results deviate most significantly from the norm, the accurate setting of standard costs is crucial to effective implementation of management by exception. Quick Study 21-5 (10 minutes) Standard direct materials cost... $150,000 Materials price variance (favorable)... (12,000) Materials quantity variance (favorable)... (2,000) Actual total direct materials cost... $136,000 1176 Financial & Managerial Accounting, 5th Edition

Quick Study 21-6 (10 minutes) Standard direct labor cost... $400,000 Labor rate variance (unfavorable)... 20,000 Labor efficiency variance (unfavorable)... 10,000 Actual total direct labor cost... $430,000 Quick Study 21-7 (15 minutes) Following information is given Actual price per pound... $ 78.00 Standard price per pound... 77.50 Material price variance per pound (unfavorable)... $ 0.50 It is also known that: Material price variance Actual pounds used = Price variance per pound x Actual pounds used = Material price variance / Price variance per pound Therefore, substituting with the information given above: Actual pounds used = $4,000 / $0.50 = 8,000 pounds Quick Study 21-8 (10 minutes) Standard overhead cost... $225,000 Overhead volume variance (favorable)... (20,000) Overhead controllable variance (unfavorable)... 60,400 Actual total overhead cost... $265,400 Quick Study 21-9 A (10 minutes) Goods in Process Inventory... 225,000 Controllable Variance... 60,400 Volume Variance... 20,000 Factory Overhead... 265,400 To apply overhead and to record overhead variances. Solutions Manual, Chapter 21 1177

Quick Study 21-10 (10 minutes) Actual variable overhead (4,700 x $4.15)*... $19,505 Applied variable overhead (5,000 x $4.00)**... 20,000 Total variable overhead cost variance... $ 495 F *Actual machine hours x Actual variable overhead rate **Standard machine hours x Standard variable overhead rate Quick Study 21-11 A (15 minutes) Actual Overhead AH x AVR Variable overhead spending and efficiency variances AH x SVR Applied Overhead SH x SVR (4,700 x $4.15) 4,700 x $4.00 5,000 x $4.00 hours per hour hours per hour hours per hour $19,505 $18,800 $20,000 $705 U (Spending variance) $1,200 F (Efficiency variance) $495 F (Total variable overhead variance) Quick Study 21-12 (15 minutes) Sales Actual Flexible Budget Fixed Budget Units 50 50 45 Price per unit Total dollars $9,000 $9,500 $9,500 (50 x $9,000) (50 x $9,500) (45 x $9,500) $450,000 $475,000 $427,500 $25,000 U $47,500 F (Sales price variance) (Sales volume variance) 1178 Financial & Managerial Accounting, 5th Edition

Quick Study 21-13 (5 minutes) Fixed costs (unchanged)... $300,000 Variable costs [($246,000/24,000) x 20,000 units]... 205,000 Total budgeted costs (flexible budget)... $505,000 Quick Study 21-14 (10 minutes) From the flexible budget at 20,000 units, compute the sales price and variable costs per unit: Sales price per unit = $400,000/20,000 units = $20.00 per unit Variable cost per unit = $80,000/20,000 units = $4.00 per unit At a production level of 26,000 units: Sales (26,000 x $20.00)... $520,000 Variable costs (26,000 x $4.00)... 104,000 Contribution margin... 416,000 Fixed costs (unchanged)... 150,000 Income from operations... $266,000 Quick Study 21-15 (10 minutes) BRODRICK COMPANY Flexible Budget Performance Report For Year Ended December 31 Flexible Actual Budget Results Variances Sales (13,000 units)... $520,000 $480,000 $40,000 U Variable expenses... 104,000 112,000 8,000 U Contribution margin... 416,000 368,000 48,000 U Fixed expenses... 150,000 145,000 5,000 F Income from operations... $266,000 $223,000 $43,000 U Solutions Manual, Chapter 21 1179

Quick Study 21-16 (10 minutes) Direct materials price variance: Actual cost of direct materials used (given)... $535,000 Actual quantity used x Standard price (300,000 x $2)... 600,000 Direct materials price variance (favorable)... $ 65,000 Direct materials quantity variance: Actual quantity used x Standard price (300,000 x $2)... $600,000 Standard quantity x Standard price (60,000 x 4 x $2)... 480,000 Direct materials quantity variance (unfavorable)... $120,000 Quick Study 21-17 (10 minutes) Direct labor rate variance: Actual hours x Actual rate per hour (65,000 x $15)... $975,000 Actual hours x Standard rate per hour (65,000 x $14)... 910,000 Direct labor rate variance (unfavorable)... $ 65,000 Direct labor efficiency variance: Actual hours x Standard rate per hour (65,000 x $14)... $910,000 Standard hours x Standard rate per hour (67,000 x $14)... 938,000 Direct labor efficiency variance (favorable)... $ 28,000 1180 Financial & Managerial Accounting, 5th Edition

Quick Study 21-18 (10 minutes) Actual overhead incurred... $262,800 Less: Applied overhead (based on flexible budget) Variable overhead (110,000 x $1.40*)... Fixed overhead (unchanged)... Controllable overhead variance (favorable)... *$162,400/116,000 units = $1.40 variable overhead rate per unit 154,000 124,000 $ 15,200 Quick Study 21-19 (10 minutes) Actual overhead incurred... $ 28,175 Less: Applied overhead (based on flexible budget) Variable overhead (9,800 x $3.10)... Fixed overhead (unchanged)... Controllable overhead variance (favorable)... 30,380 12,000 $(14,205) Quick Study 21-20 (5 minutes) Budgeted fixed overhead (at 12,000 units)... $12,000 Fixed overhead applied to production (9,800 x $1)... Volume variance (favorable)... 9,800 $ 2,200 Quick Study 21-21 (15 minutes) Sales Actual Flexible Budget Fixed Budget Units 216,944 216,944 225,944 Price per unit Total dollars $30,200 $30,000 $30,000 (216,944 x $30,200) (216,944 x $30,000) (225,944 x $30,000) $6,551,708,800 $6,508,320,000 $6,778,320,000 $43,388,800 F $270,000,000 U (Sales price variance) (Sales volume variance) Solutions Manual, Chapter 21 1181

EXERCISES Exercise 21-1 (20 minutes) Item Cost a. Bike frames Variable b. Screws for assembly Variable c. Repair expense for tools (If these costs are only remotely related to volume, they may be better classified as fixed) d. Direct labor (If employees receive monthly salaries, this cost would be fixed) Variable Variable e. Bike tires Variable f. Gas used for heating** Variable g. Incoming shipping expenses* Variable h. Taxes on property Fixed i. Office supplies (This item can be a variable cost, but it usually is not because it doesn t often change in direct proportion to changes in the volume level) j. Depreciation on tools (If the company uses the units-ofproduction method, the depreciation would be variable) Fixed Fixed k. Management salaries Fixed * Incoming shipping expenses are variable with respect to the number (volume) of incoming shipments, not production. ** Gas used for heating is often a mixed cost rather than strictly variable. 1182 Financial & Managerial Accounting, 5th Edition

Exercise 21-2 (30 minutes) TEMPO COMPANY Flexible Budgets For Quarter Ended March 31, 2013 Flexible Budget Flexible Flexible Flexible Variable Amount per Unit* Total Fixed Cost Budget for Unit Sales of 6,000 Budget for Unit Sales of 7,000 Budget for Unit Sales of 8,000 Sales... $400.00 $2,400,000 $2,800,000 $3,200,000 Variable costs Direct materials... 40.00 240,000 280,000 320,000 Direct labor... 70.00 420,000 490,000 560,000 Production supplies... 25.00 150,000 175,000 200,000 Sales commissions... 20.00 120,000 140,000 160,000 Packaging... 22.00 132,000 154,000 176,000 Total variable costs... 177.00 1,062,000 1,239,000 1,416,000 Contribution margin... $223.00 1,338,000 1,561,000 1,784,000 Fixed costs Plant manager salary... $ 65,000 65,000 65,000 65,000 Advertising... 125,000 125,000 125,000 125,000 Admin. salaries... 85,000 85,000 85,000 85,000 Depr. Office equip.... 35,000 35,000 35,000 35,000 Insurance... 20,000 20,000 20,000 20,000 Office rent... 36,000 36,000 36,000 36,000 Total fixed costs... $366,000 366,000 366,000 366,000 Income from operations... $ 972,000 $1,195,000 $1,418,000 * Equals total variable costs divided by the volume of 7,000 units. Solutions Manual, Chapter 21 1183

Exercise 21-3 (25 minutes) SOLITAIRE COMPANY Flexible Budget Performance Report For Month Ended June 30 Flexible Actual Budget Results Variances Sales (10,800 units)... $540,000 $540,000 $ 0 Variable expenses... 378,000 351,000 27,000 F Contribution margin... 162,000 189,000 27,000 F Fixed expenses... 21,000 27,000 6,000 U Income from operations... $141,000 $162,000 $21,000 F Supporting computations Total fixed budget sales... $ 420,000 Total fixed budget units... 8,400 Budgeted selling price... $50 per unit Flexible budget units... 10,800 Flexible budget sales... $ 540,000 Total fixed budget variable expenses... $ 294,000 Total units budgeted... 8,400 Budgeted variable expenses... $35 per unit Flexible budget units... 10,800 Flexible budget variable expenses... $ 378,000 Total actual expenses... $ 378,000 Less actual fixed expenses... 27,000 Total actual variable expenses... $ 351,000 1184 Financial & Managerial Accounting, 5th Edition

Exercise 21-4 (25 minutes) BAY CITY COMPANY Flexible Budget Performance Report For Month Ended July 31 Flexible Actual Budget Results Variances Sales (7,200 units)... $720,000 $737,000 $17,000 F Variable expenses... 468,000 483,000 15,000 U Contribution margin... 252,000 254,000 2,000 F Fixed expenses... 160,000 158,000 2,000 F Income from operations... $ 92,000 $ 96,000 $ 4,000 F Supporting computations Total fixed budget sales... $ 750,000 Total units budgeted... 7,500 Budgeted selling price... $100 per unit Flexible budget units... 7,200 Flexible budget sales... $ 720,000 Total fixed budget variable expenses... $ 487,500 Total units budgeted... 7,500 Budgeted variable expenses... $ 65 per unit Flexible budget units... 7,200 Flexible budget variable expenses... $ 468,000 Total actual expenses... $ 641,000 Less actual fixed expenses... 158,000 Total actual variable expenses... $ 483,000 Solutions Manual, Chapter 21 1185

Exercise 21-5 (30 minutes) 1. October variances Preliminary computations Actual hours: 16,250 hours (given) Standard hours: 5,600 units x 3 hrs./unit = 16,800 hrs. Actual rate: $247,000/16,250 hours = $15.20/hr. Standard rate: $15.00/hr. (given) Direct labor cost variances Actual units at actual cost [16,250 hrs. @ $15.20]... $247,000 Standard units and standard cost [16,800 hrs. @ $15.00]... 252,000 Direct labor cost variance... $ 5,000 F Actual Cost AH x AR Rate and efficiency variances AH x SR Standard Cost SH x SR 16,250 x $15.20 16,250 x $15.00 16,800 x $15.00 hours per hour hours per hour hours per hour $247,000 $243,750 $252,000 $3,250 U (Rate variance) $8,250 F (Efficiency variance) $5,000 F (Total labor variance) Alternate solution format Rate variance = AH x (AR SR) = 16,250 hours x ($15.20 - $15.00) per hour = 16,250 hours x $0.20 per hour = $3,250 U Efficiency variance Rate variance... $3,250 U Efficiency variance... 8,250 F Total... $5,000 F = (AH - SH) x SR = (16,250 16,800) hours x $15.00 per hour = (-550 hours) x $15.00 per hour = $8,250 F 1186 Financial & Managerial Accounting, 5th Edition

Exercise 21-5 (Concluded) November variances Preliminary computations Actual hours: 22,000 hours (given) Standard hours: 6,000 units x 3 hrs./unit = 18,000 hours Actual rate: $335,500/22,000 hrs. = $15.25/hr. Standard rate: $15.00/hr. (given) Direct labor cost variances Actual units at actual cost [22,000 hrs. @ $15.25]... $335,500 Standard units at standard cost [18,000 hrs. @ $15.00]... 270,000 Direct labor cost variance... $ 65,500 U Actual Cost AH x AR Rate and efficiency variances AH x SR Standard Cost SH x SR 22,000 x $15.25 22,000 x $15.00 18,000 x $15.00 hours per hour hours per hour hours per hour $335,500 $330,000 $270,000 $5,500 U (Rate variance) $60,000 U (Efficiency variance) $65,500 U (Total labor variance) 2. The unfavorable labor rate variance in October means the actual rate for an hour of labor is greater than budgeted. The favorable labor efficiency variance means the actual hours used are less than budgeted. Together, these results can be interpreted to mean that employees are paid more than budgeted, but are also more productive than budgeted. Perhaps a more skilled labor force was used during the month of October. In November, there was an unfavorable rate variance and an unfavorable efficiency variance. The company needs to look carefully at why there was such a large unfavorable efficiency variance. Solutions Manual, Chapter 21 1187

Exercise 21-6 (20 minutes) 1. Predetermined overhead rate computations Expected volume... 75% Expected total overhead... $2,100,000 Expected hours... 375,000 hrs. Variable cost per hour ($1,500,000/ 375,000)... $4.00 Fixed cost per hour ($600,000/ 375,000)... $1.60 Total cost per hour ($2,100,000/ 375,000)... $5.60 2. Variable overhead cost variance Variable overhead cost incurred [given]... $1,375,000 Variable overhead cost applied [350,000 hrs. @ $4.00]... 1,400,000 Variable overhead cost variance... $ 25,000 F Fixed overhead cost variance Fixed overhead cost incurred [given]... $ 628,600 Fixed overhead cost applied [350,000 hrs. @ $1.60]... 560,000 Fixed overhead cost variance... $ 68,600 U 1188 Financial & Managerial Accounting, 5th Edition

Exercise 21-7 A (20 minutes) 1. Variable overhead spending and efficiency variances Actual Overhead AH x AVR AH x SVR Applied Overhead SH x SVR (Given) 340,000 x $4.00 350,000 x $4.00 hours per hour hours per hour $1,375,000 $1,360,000 $1,400,000 $15,000 U (Spending variance) $40,000 F (Efficiency variance) $25,000 F (Total variable overhead variance) Interpretation: The $15,000 unfavorable spending variance means the actual cost of variable overhead is more than budgeted. This unfavorable variance can occur because the cost of variable overhead is greater than budgeted or because more variable items are consumed than anticipated. It could also be a combination of both; where the cost and usage may be greater or less than anticipated, yet the net impact is an unfavorable spending variance. The $40,000 favorable efficiency variance occurs because the actual labor hours used is less than the standard labor hours required for actual production. Labor hours are used as the allocation base. Solutions Manual, Chapter 21 1189

Exercise 21-7 A (continued) 2. Fixed overhead spending and volume variances Actual Overhead Budgeted Overhead Applied Overhead (Given) (Given) 350,000 x $1.60 hours per hour $628,600 $600,000 $560,000 $28,600 U (Spending variance) $40,000 U (Volume variance) $68,600 U (Total fixed overhead variance) Interpretation The $28,600 unfavorable spending variance means actual cost of fixed overhead is more than budgeted. The $40,000 unfavorable volume variance is the result of the company actually operating at 70% capacity rather than the budgeted 75% capacity. Not all of the budgeted fixed overhead is applied to production because actual volume fell below budgeted volume. 3. The controllable variance is computed as: Variable overhead spending variance... Variable overhead efficiency variance... Fixed overhead spending variance... Controllable variance... $15,000 U 40,000 F 28,600 U $ 3,600 U The controllable variance refers to activities that are considered within management s control. The unfavorable controllable variance of $3,600 indicates that overall, management performed relatively poorly in controlling overhead costs. 1190 Financial & Managerial Accounting, 5th Edition

Exercise 21-8 (30 minutes) 1. Preliminary computations Actual quantity: 22,000 bd. ft. (given) Standard quantity: 3,000 units x 8 bd. ft./unit = 24,000 bd. ft. Actual price: $266,200/22,000 bd. ft. = $12.10/bd. ft. Standard price: $12.00/bd. ft. (given) Direct material cost variances Actual units at actual cost [22,000 bd. ft. @ $12.10]... $266,200 Standard units at standard cost [(24,000 bd. ft. @ $12.00]... 288,000 Direct material cost variance... $ 21,800 F Actual Cost AQ x AP Price and quantity variances AQ x SP Standard Cost SQ x SP 22,000 x $12.10 22,000 x $12.00 24,000 x $12.00 bd. ft. per bd. ft. bd. ft. per bd. ft. bd. ft. per bd. ft. $266,200 $264,000 $288,000 $2,200 U (Price variance) $24,000 F (Quantity variance) $21,800 F (Total materials variance) Alternate solution format Price variance = AQ x (AP SP) = 22,000 board feet x ($12.10 - $12.00) = $2,200 U Quantity variance Price variance... $ 2,200 U Quantity variance... 24,000 F Total variance... $21,800 F = (AQ SQ) x SP = (22,000-24,000) board feet x $12.00/board foot = $24,000 F 2. The unfavorable price variance means the actual price paid is more than the budgeted price. The favorable quantity variance means the actual quantity used is less than the budgeted amount. It appears the company operated with quality materials in an efficient manner at a slightly higher than expected cost. Solutions Manual, Chapter 21 1191

Exercise 21-9 A (25 minutes) 1. Goods in Process Inventory... 288,000 Direct Materials Price Variance*... 2,200 Direct Materials Quantity Variance... 24,000 Raw Materials Inventory... 266,200 To record the favorable price and quantity variances. * This price variance can alternatively be computed and recorded when the direct materials are purchased. 2. Direct Materials Quantity Variance... 24,000 Direct Materials Price Variance... 2,200 Cost of Goods Sold... 21,800 To close the unfavorable price and favorable quantity variances to cost of goods sold. 3. The $24,000 materials quantity variance should be investigated because of its relatively large magnitude. In particular, this variance is large relative to the total materials inventory $24,000/$266,200, or approximately 9% of inventory purchased. 1192 Financial & Managerial Accounting, 5th Edition

Exercise 21-10 (20 minutes) Information given Planned units to be produced = 80% x 50,000 capacity = 40,000 units Planned hours of direct labor = 25,000 hours Standard hours per unit = 25,000 hours/40,000 units = 0.625 hours per unit Total standard hrs. for act. production: 35,000 units x 0.625/unit = 21,875 hr. 1. Total overhead planned at 80% level (25,000 direct labor hours) Predetermined Cost Cost per Hour Fixed overhead... $ 50,000 $ 2.00 Variable overhead... 275,000 11.00 Total overhead... $325,000 $13.00 2. Total overhead variance Total actual overhead (given)... $305,000 Applied overhead ($13/hr. x 21,875 hours)... 284,375 Total overhead variance... $ 20,625 U Solutions Manual, Chapter 21 1193

Exercise 21-11 (30 minutes) 1. Preliminary variance computations Variable overhead spending and efficiency variances Actual Overhead AH x AVR AH x SVR Applied Overhead SH x SVR 22,000 x $11 21,875 x $11 $ * $242,000 $240,625 $ * (Spending variance) $ 1,375 U (Efficiency variance) $ * (Total variable overhead variance) Fixed overhead spending and volume variances Actual Overhead Budgeted Overhead Applied Overhead (Given) 21,875 x $2 $ * $50,000 $43,750 $ * (Spending variance) $6,250 U (Volume variance) * Not computable from information given $ * (Total fixed overhead variance) 2. Overhead controllable variance* Total actual overhead (given)... $305,000 Flexible budget overhead Variable ($11/hr. x 21,875 hours)... $240,625 Fixed (given)... 50,000 Total... 290,625 Overhead controllable variance... $ 14,375 U * Alternative solution approach: We know the overhead controllable variance is equal to the total overhead variance less the overhead volume variance. Then, using the results from parts 1 and 2, we can compute the overhead controllable variance as Overhead controllable variance = $20,625 U - $6,250 U = $14,375 U 1194 Financial & Managerial Accounting, 5th Edition

Exercise 21-12 (25 minutes) 1. Sales price and sales volume variances Sales Actual Sales Flexible Budget Fixed Budget Units 350 350 365 Price/unit $1,200 $1,100 $1,100 (350 x $1,200) (350 x $1,100) (365 x $1,100) Total $420,000 $385,000 $401,500 $35,000 F (Sales price variance) $16,500 U (Sales volume variance) 2. Interpretation The $35,000 favorable sales price variance implies it sold computers for a higher price than budgeted. The $16,500 unfavorable sales volume variance implies it sold fewer computers than budgeted, perhaps because of the price increase. Exercise 21-13 (10 minutes) a. 4 b. 3 c. 5 d. 2 e. 1 Exercise 21-14 (15 minutes) (1) c (2) a (3) b (4) i (5) e (6) h (7) d (8) f (9) j (10) g Exercise 21-15 (5 minutes) Following management by exception, the company should focus on those variances that exhibit the greatest differences from the standard. This would likely include the direct materials quantity ($3,000 unfavorable) and direct labor efficiency ($2,200 favorable). Though the fixed overhead volume variance is relatively large ($500 favorable), it merely shows the company operated at a capacity level different than expected. Solutions Manual, Chapter 21 1195

Exercise 21-16 (25 minutes) Part 1 Direct materials price variance: Actual cost of direct materials used (16,000 x $4.05)... $ 64,800 Actual quantity used x Standard price (16,000 x $4.00)... 64,000 Direct materials price variance (unfavorable)... $ 800 Direct materials quantity variance: Actual quantity used x Standard price (16,000 x $4.00)... $ 64,000 Standard quantity x Standard price (15,000* x $4.00)... 60,000 Direct materials quantity variance (unfavorable)... $ 4,000 *30,000 units x ½ pound per unit = 15,000 pounds Part 2 Direct labor rate variance: Actual hours x Actual rate per hour (5,545 x $19.00***)... $105,355 Actual hours x Standard rate per hour (5,545 x $20.00)... 110,900 Direct labor rate variance (favorable)... $ 5,545 Direct labor efficiency variance: Actual hours x Standard rate per hour (5,545 x $20.00)... $110,900 Standard hours x Standard rate per hour (5,000** x $20.00)... 100,000 Direct labor efficiency variance (unfavorable)... $ 10,900 **30,000 units x 1/6 hour per unit = 5,000 hours ***$105,355/5,545 hours 1196 Financial & Managerial Accounting, 5th Edition

Problem 21-1A ( 40 minutes) Part 1 Direct Materials Variances PROBLEM SET A Direct materials cost variances Actual units at actual cost [1,615,000 lbs. @ $4.10]... $6,621,500 Standard units at standard cost [1,620,000 lbs. @ $4.00]... 6,480,000 Direct material cost variance... $ 141,500 U Actual Cost AQ x AP Direct Materials Price and Quantity Variances Standard Cost AQ x SP SQ x SP 1,615,000 x $4.10 1,615,000 x $4.00 1,620,000 x $4.00 $6,621,500 $6,460,000 $6,480,000 $161,500 U (Price variance) $20,000 F (Quantity variance) Part 2 Direct Labor Variances $141,500 U (Total materials variance) Direct labor cost variances Actual units at actual cost [265,000 hrs. @ $13.75]... $3,643,750 Standard units at standard cost [270,000 hrs. @ $14.00]... 3,780,000 Direct labor cost variance... $ 136,250 F Actual Cost AH x AR Direct Labor Rate and Efficiency Variances Standard Cost AH x SR SH x SR 265,000 x $13.75 265,000 x $14.00 270,000 x $14.00 $3,643,750 $3,710,000 $3,780,000 $66,250 F (Rate variance) $70,000 F (Efficiency variance) $136,250 F (Total labor variance) Solutions Manual, Chapter 21 1197

Problem 21-1A (Continued) Part 3 Overhead Variances Controllable variance Actual overhead [$2,350,000 + $2,200,000]... $4,550,000 Budgeted overhead [from flexible budget, 90% capacity]... 4,560,000 Controllable variance... $ 10,000 F Fixed overhead volume variance Budgeted fixed overhead [given, at 80% capacity]... $2,400,000 Fixed overhead cost applied [270,000 hrs. @ $10]... 2,700,000 Fixed overhead volume variance... $ 300,000 F 1198 Financial & Managerial Accounting, 5th Edition

Problem 21-2A A (15 minutes) (a) Variable overhead Actual Overhead AH x AVR Variable Overhead Spending and Efficiency Variances AH x SVR Applied Overhead SH x SVR 265,000 x $8 270,000 x $8 $2,200,000 $2,120,000 $2,160,000 $80,000 U (Spending variance) $40,000 F (Efficiency variance) $40,000 U (Total variable overhead variance) (b) Fixed overhead Fixed Overhead Spending and Volume Variances Actual Overhead Budgeted Overhead Applied Overhead 270,000 x $10 $2,350,000 $2,400,000 $2,700,000 $50,000 F (Spending variance) $300,000 F (Volume variance) $350,000 F (Total fixed overhead variance) (c) Controllable variance Variable overhead spending variance... $ 80,000 U Variable overhead efficiency variance... 40,000 F Fixed overhead spending variance... 50,000 F Total overhead controllable variance... $ 10,000 F Solutions Manual, Chapter 21 1199

Problem 21-3A (60 minutes) Part 1 Variable or Fixed Classification Amount per unit Variable sales (total divided by 15,000 units) Sales... $ 200.00 Variable costs (total divided by 15,000 units) Direct materials... $ 65.00 Direct labor... 15.00 Machinery repairs... 4.00 Utilities ($45,000 variable)... 3.00 Packaging... 5.00 Shipping... 7.00 Total variable costs... $ 99.00 Fixed costs Depreciation Plant equipment... $ 300,000 Utilities ($195,000 - $45,000 variable)... 150,000 Plant management salaries... 200,000 Sales salary... 250,000 Advertising expense... 125,000 Salaries... 241,000 Entertainment expense... 90,000 Total fixed costs... $1,356,000 1200 Financial & Managerial Accounting, 5th Edition

Problem 21-3A (Continued) Part 2 PHOENIX COMPANY Flexible Budgets For Year Ended December 31, 2013 Flexible Budget Flexible Flexible Variable Amount per Unit Total Fixed Cost Budget for Unit Sales of 14,000 Budget for Unit Sales of 16,000 Sales... $200.00 $2,800,000 $3,200,000 Variable costs Direct materials... 65.00 910,000 1,040,000 Direct labor... 15.00 210,000 240,000 Machinery repairs... 4.00 56,000 64,000 Utilities... 3.00 42,000 48,000 Packaging... 5.00 70,000 80,000 Shipping... 7.00 98,000 112,000 Total variable costs... 99.00 1,386,000 1,584,000 Contribution margin... $101.00 1,414,000 1,616,000 Fixed costs Depreciation Plant Equip... $ 300,000 300,000 300,000 Utilities... 150,000 150,000 150,000 Plant mgmt. salaries... 200,000 200,000 200,000 Sales salary.... 250,000 250,000 250,000 Advertising expense... 125,000 125,000 125,000 Salaries... 241,000 241,000 241,000 Entertainment expense... 90,000 90,000 90,000 Total fixed costs... $1,356,000 1,356,000 1,356,000 Income from operations... $ 58,000 $ 260,000 Solutions Manual, Chapter 21 1201

Problem 21-3A (Continued) Part 3 Operating income increase for a 15,000 to 18,000 unit sales increase Possible sales (units)... 18,000 Units Contribution margin per unit... x $101 Total contribution margin... $1,818,000 Less: Fixed costs... (1,356,000) Potential operating income... $ 462,000 vs. Budgeted income for 2013... 159,000 Increase... $ 303,000* *Alternate solution format Unit increase... 3,000 Units Contribution margin per unit... x $101 Increase in contribution margin... $303,000 Since there is no increase in fixed costs, the expected increase in operating income is the same $303,000. Part 4 Operating income (loss) at 12,000 units Possible sales (units)... 12,000 Units Contribution margin per unit... x $101 Total contribution margin... $1,212,000 Less: Fixed costs... (1,356,000) Potential operating loss... $ (144,000) 1202 Financial & Managerial Accounting, 5th Edition

Problem 21-4A (45 minutes) Part 1 PHOENIX COMPANY Flexible Budget Performance Report For Year Ended December 31, 2013 Flexible Actual Budget Results Variances* Sales (18,000 units)... $3,600,000 $3,648,000 $48,000 F Variable costs Direct materials... 1,170,000 1,185,000 15,000 U Direct labor... 270,000 278,000 8,000 U Machinery repairs... 72,000 63,000 9,000 F Utilities... 54,000 53,000 1,000 F Packaging... 90,000 87,500 2,500 F Shipping... 126,000 118,500 7,500 F Total variable costs... 1,782,000 1,785,000 3,000 U Contribution margin... 1,818,000 1,863,000 45,000 F Fixed costs Depreciation Plant equip.... 300,000 300,000 0 Utilities... 150,000 147,500 2,500 F Plant management salaries... 200,000 210,000 10,000 U Sales salary... 250,000 268,000 18,000 U Advertising expense... 125,000 132,000 7,000 U Salaries... 241,000 241,000 0 Entertainment expense... 90,000 93,500 3,500 U Total fixed costs... 1,356,000 1,392,000 36,000 U Income from operations... $ 462,000 $ 471,000 $ 9,000 F *F = Favorable variance; and U = Unfavorable variance. Solutions Manual, Chapter 21 1203

Problem 21-4A (Continued) Part 2 (a) Analysis of sales variance Total Per unit Budgeted sales... $3,600,000 $200.00 Actual sales... 3,648,000 202.67* Sales variance (favorable)... $ 48,000 $ 2.67 Interpretation: The sales variance is favorable because the actual price was higher than planned. * (rounded) (b) Analysis of direct materials variance Total Per unit Budgeted materials... $1,170,000 $ 65.00 Actual materials used... 1,185,000 65.83 Direct materials variance (unfavorable)... $ 15,000 $ 0.83 Interpretation: The direct materials variance is unfavorable for two possible reasons. (1) The quantity of materials used may have been more than the quantity budgeted, and/or (2) the amount paid for the materials might have been more than the budgeted purchase price. 1204 Financial & Managerial Accounting, 5th Edition

Problem 21-5A (60 minutes) Part 1 Per unit Variable or Fixed Classification Amount Variable costs (total divided by 15,000 units) Indirect materials... $ 3.00 Indirect labor... 12.00 Power... 3.00 Repairs and maintenance... 6.00 Total variable costs... $ 24.00 Fixed costs (per month) Depreciation Building... $ 24,000 Depreciation Machinery... 80,000 Taxes and insurance... 12,000 Supervision... 79,000 Total fixed costs... $195,000 Part 2 Variable overhead costs ANTUAN COMPANY Flexible Overhead Budgets For Month Ended October 31 Flexible Budget Flexible Flexible Flexible Variable Amount per Unit Total Fixed Cost Budget for Unit Sales of 13,000 Budget for Unit Sales of 15,000 Budget for Unit Sales of 17,000 Indirect materials... $ 3.00 $ 39,000 $ 45,000 $ 51,000 Indirect labor... 12.00 156,000 180,000 204,000 Power... 3.00 39,000 45,000 51,000 Repairs and maint.... 6.00 78,000 90,000 102,000 Total variable costs... $24.00 312,000 360,000 408,000 Fixed overhead costs Depreciation Building... $ 24,000 24,000 24,000 24,000 Depreciation Mach... 80,000 80,000 80,000 80,000 Taxes and insurance... 12,000 12,000 12,000 12,000 Supervision... 79,000 79,000 79,000 79,000 Total fixed costs... $195,000 195,000 195,000 195,000 Total overhead costs... $507,000 $555,000 $603,000 Solutions Manual, Chapter 21 1205

Problem 21-5A (Continued) Part 3 Direct Materials Variances Preliminary computations Actual material used: Standard quantity of materials: Actual price: Standard price: 91,000 lbs. (given) 15,000 units x 6 lb./unit = 90,000 lb. $5.10/lb. (given) $5.00/lb. (given) Direct material cost variances Actual units at actual cost [91,000 lbs. @ $5.10]... $464,100 Standard units at standard cost [90,000 lbs. @ $5.00]... 450,000 Direct material cost variance... $ 14,100 U Actual Costs AQ x AP Direct Materials Price and Quantity Variances Standard Costs AQ x SP SQ x SP 91,000 x $5.10 91,000 x $5.00 90,000 x $5.00 lbs. per lb. lbs. per lb. Lbs. per lb. $464,100 $455,000 $450,000 $9,100 U (Price variance) $5,000 U (Quantity variance) $14,100 U (Total materials variance) Alternate solution format Price variance = AQ x (AP SP) = 91,000 lb. x ($5.10 - $5.00) per lb. = 91,000 lb. x ($0.10) per lb. = $9,100 U Quantity variance = (AQ - SQ) x SP = (91,000 90,000) lb. x $5.00 per lb. = 1,000 lb. x $5.00 per lb. = $5,000 U Price variance... $ 9,100 U Quantity variance... 5,000 U Total variance... $14,100 U 1206 Financial & Managerial Accounting, 5th Edition

Problem 21-5A (Continued) Part 4 Direct labor variances Preliminary computations Actual hours used: Standard hours: Actual rate: Standard rate: 30,500 hours (given) 15,000 units x 2 hrs./unit = 30,000 hours $17.25/hr. (given) $17.00/hr. (given) Direct labor cost variances Actual units at actual cost [30,500 hrs. @ $17.25]... $526,125 Standard units at standard cost [30,000 hrs. @ $17.00]... 510,000 Direct labor cost variance... $ 16,125 U Actual Costs AH x AR Direct Labor Rate and Efficiency Variances Standard Costs AH x SR SH x SR 30,500 x $17.25 30,500 x $17.00 30,000 x $17.00 hours per hr. hours per hr. hours per hr. $526,125 $518,500 $510,000 $7,625 U (Rate variance) $8,500 U (Efficiency variance) $16,125 U (Total labor variance) Alternate solution format Rate variance = AH x (AR - SR) = 30,500 hours x ($17.25 - $17.00) per hour = 30,500 x $0.25 per hour = $7,625 U Efficiency variance = (AH - SH) x SR = (30,500 30,000) hours x $17.00 per hour = 500 hours x $17.00 per hour = $8,500 U Rate variance... $ 7,625 U Efficiency variance... 8,500 U Total... $16,125 U Solutions Manual, Chapter 21 1207

Problem 21-5A (Concluded) Part 5 Volume Variance ANTUAN COMPANY Overhead Variance Report For Month Ended October 31 Expected production level... 75% of capacity Production level achieved... 75% of capacity Volume variance... none Flexible Actual Controllable Variance Budget Results Variances* Variable overhead costs Indirect materials... $ 45,000 $ 44,250 $ 750 F Indirect labor... 180,000 177,750 2,250 F Power... 45,000 43,000 2,000 F Repairs and maintenance... 90,000 96,000 6,000 U Total variable costs... 360,000 361,000 1,000 U Fixed overhead costs Depreciation Building... 24,000 24,000 0 Depreciation Machinery... 80,000 75,000 5,000 F Taxes and insurance... 12,000 11,500 500 F Supervision... 79,000 89,000 10,000 U Total fixed costs... 195,000 199,500 4,500 U Total overhead costs... $555,000 $560,500 $ 5,500 U *F = Favorable variance; and U = Unfavorable variance. 1208 Financial & Managerial Accounting, 5th Edition

Problem 21-6A A (80 minutes) Part 1 Direct Materials Variances Preliminary computations Actual quantity of materials used: Standard quantity of materials: Actual price: Standard price: 138,000 lb. (given) 9,000 units x 15 lbs./unit = 135,000 lb. $3.75 (given) $4.00 (given) Direct materials cost variances Actual units at actual cost [138,000 lbs. @ $3.75]... $517,500 Standard units at standard cost [135,000 lbs. @ $4.00]... 540,000 Direct material cost variance... $ 22,500 F Actual Cost AQ x AP Direct Materials Price and Quantity Variances Standard Cost AQ x SP SQ x SP 138,000 x $3.75 138,000 x $4.00 135,000 x $4.00 lbs. per lb. lbs. per lb. lbs. per lb. $517,500 $552,000 $540,000 $34,500 F (Price variance) $12,000 U (Quantity variance) $22,500 F (Total materials variance) Alternate solution format Price variance = AQ x (AP - SP) = 138,000 lb. x ($3.75 - $4.00) per lb. = 138,000 x (-$0.25 per lb.) = $34,500 F Quantity variance = (AQ SQ) x SP = (138,000-135,000) x $4.00 per lb. = 3,000 lb. x $4.00 per lb. = $12,000 U Price variance... $34,500 F Quantity variance... 12,000 U Total variance... $22,500 F Solutions Manual, Chapter 21 1209

Problem 21-6A A (Continued) Part 2 Direct Labor Variances Preliminary computations Actual hours: Standard hours: Actual rate: Standard rate per hour: 31,000 hrs. (given) 9,000 units x 3 hrs./unit = 27,000 hrs. $15.10/hr. (given) $15.00 (given) Direct labor cost variances Actual units at actual cost [31,000 hrs. @ $15.10]... $468,100 Standard units at standard cost [27,000 hrs. @ $15.00]... 405,000 Direct labor cost variance... $ 63,100 U Actual Costs AH x AR Direct Labor Rate and Efficiency Variances Standard Costs AH x SR SH x SR 31,000 x $15.10 31,000 x $15.00 27,000 x $15.00 hours per hr. hours per hr. hours per hr. $468,100 $465,000 $405,000 $3,100 U (Rate variance) $60,000 U (Efficiency variance) $63,100 U (Total labor variance) Alternate solution format Rate variance = AH x (AR - SR) = 31,000 hours x ($15.10 - $15.00) per hour = 31,000 x $0.10 per hour = $ 3,100 U Efficiency variance = (AH - SH) x SR = (31,000-27,000) hours x $15.00 per hour = 4,000 hours x $15.00 per hour = $60,000 U Rate variance... $ 3,100 U Efficiency variance... 60,000 U Total... $63,100 U 1210 Financial & Managerial Accounting, 5th Edition

Problem 21-6A A (Continued) Part 3 Overhead Variances (a) Variable overhead Preliminary computations Actual variable overhead (given): Indirect materials... $15,000 Indirect labor... 26,500 Power... 6,750 Maintenance... 4,000 Total... $52,250 Actual hours: 31,000 (given) Standard hours: 27,000 (from part 2) Standard rate: Budgeted variable overhead $48,000 = =$2.00/hr Budgeted direct labor hours 24,000 hours Variable overhead cost variances Variable overhead cost incurred [given]... $52,250 Variable overhead cost applied [27,000 hrs. @ $2/hr.]... 54,000 Variable overhead cost variance... $ 1,750 F Actual Overhead AH x AVR Variable Overhead Spending and Efficiency Variances AH x SVR Applied Overhead SH x SVR 31,000 x $2.00 27,000 x $2.00 hours per hr. hours per hr. $52,250 $62,000 $54,000 $9,750 F (Spending variance) $8,000 U (Efficiency variance) $1,750 F (Total variable overhead variance) Solutions Manual, Chapter 21 1211

Problem 21-6A A (Continued) (b) Fixed overhead Preliminary computations Actual fixed overhead (given): Rent of factory building... $15,000 Depreciation, machinery... 10,000 Supervisory salaries... 22,000 Total... $47,000 Budgeted fixed overhead: $44,400 (given) Standard rate: Budgeted fixed overhead = $44,400 = $1.85/hr Budgeted direct labor hours 24,000 hours Fixed overhead cost variances Fixed overhead cost incurred [given]... $47,000 Fixed overhead cost applied [27,000 hrs. @ $1.85]... 49,950 Fixed overhead cost variance... $ 2,950 F Fixed Overhead Spending and Volume Variances Actual Overhead Budgeted Overhead Fixed Overhead Applied 27,000 x $1.85 hours per hr. $47,000 $44,400 $49,950 $2,600 U (Spending variance) $5,550 F (Volume variance) $2,950 F (Total fixed overhead variance) (c) Total overhead controllable variance Variable overhead spending variance...$9,750 F Variable overhead efficiency variance... 8,000 U Fixed overhead spending variance... 2,600 U Total overhead controllable variance...$ 850 U 1212 Financial & Managerial Accounting, 5th Edition

Problem 21-6A A (Continued) Part 4 Volume Variance KEGLER COMPANY Overhead Variance Report For Month Ended May 31 Expected production level... Production level achieved... Volume variance... 80% of capacity 90% of capacity $5,550 (favorable) Flexible Actual Controllable Variance Budget Results Variances* Variable overhead costs Indirect materials... $16,875 $15,000 $1,875 F Indirect labor... 27,000 26,500 500 F Power... 6,750 6,750 0 Maintenance... 3,375 4,000 625 U Total variable costs... 54,000 52,250 1,750 F Fixed overhead costs Rent of factory building... 15,000 15,000 0 Depreciation Machinery... 10,000 10,000 0 Supervisory salaries... 19,400 22,000 2,600 U Total fixed costs... 44,400 47,000 2,600 U Total overhead costs... $98,400 $99,250 $ 850 U * F = Favorable variance; and U = Unfavorable variance. Solutions Manual, Chapter 21 1213

Problem 21-7A A (45 minutes) Part 1 Dec. 31* Goods in Process Inventory... 100,000 Direct Materials Quantity Variance... 3,000 Direct Materials Price Variance... 500 Raw Materials Inventory... 102,500 To record materials costs, including the unfavorable quantity and favorable price variances. Dec. 31 Goods in Process Inventory... 95,800 Direct Labor Rate Variance... 1,200 Direct Labor Efficiency Variance... 7,000 Factory Payroll... 90,000 To record direct labor costs, including the favorable efficiency variance and unfavorable rate variance. Dec. 31 Goods in Process Inventory... 354,000 Controllable Variance... 9,000 Volume Variance... 12,000 Factory Overhead... 375,000 To record overhead costs, including the unfavorable volume and unfavorable controllable variances. * Alternatively, some companies compute and record the price variance when materials are purchased. This would yield two separate entries: (1) Purchase of materials Raw Materials Inventory... 103,000 Direct Materials Price Variance... 500 Accounts Payable... 102,500 (2) Issuance of materials into production Goods in Process Inventory... 100,000 Direct Materials Quantity Variance... 3,000 Raw Materials Inventory... 103,000 1214 Financial & Managerial Accounting, 5th Edition

Problem 21-7A A (Continued) Part 2 Under management by exception, the manager would first identify the largest variances, attempt to uncover their causes, and then implement actions aimed at correcting them. The smaller variances would be tackled after the major problems were dealt with, if at all. The largest variance amounts occur for the material quantity variance, the direct labor efficiency variance, and the two overhead variances. The manager should go to the production department to find out why the process used more materials and less labor hours than expected. The controllable variance would need to be broken down into its components for individual cost items to see which ones deviated most from expected results.* Based on these findings, lower-level managers would be called on to explain what happened. After the relatively larger amounts are explained and actions taken, the manager can seek explanations of the less significant material price variance from the purchasing department and the direct labor rate variance from the personnel department. * The unfavorable volume variance indicates that the company produced fewer items than expected. Managers would need to determine whether this was because of declining sales, idle time, breakdowns, or other reasons. Solutions Manual, Chapter 21 1215

Problem 21-1B (50 minutes) Part 1 Direct Materials Variances PROBLEM SET B Direct materials cost variances Actual units at actual cost [1,000,000 lbs. @ $4.25]... $4,250,000 Standard units at standard cost [1,050,000 lbs. @ $4.00]... 4,200,000 Direct material cost variance... $ 50,000 U Actual Cost AQ x AP Direct Materials Price and Quantity Variances Standard Cost AQ x SP SQ x SP 1,000,000 x $4.25 1,000,000 x $4.00 1,050,000 x $4.00 $4,250,000 $4,000,000 $4,200,000 $250,000 U (Price variance) $200,000 F (Quantity variance) $50,000 U (Total materials variance) Part 2 Direct Labor Variances Direct labor cost variances Actual units at actual cost [250,000 hrs. @ $7.75]... $1,937,500 Standard units at standard cost [252,000 hrs. @ $8.00]... 2,016,000 Direct labor cost variance... $ 78,500 F Actual Cost AH x AR Direct Labor Rate and Efficiency Variances Standard Cost AH x SR SH x SR 250,000 x $7.75 250,000 x $8.00 252,000 x $8.00 $1,937,500 $2,000,000 $2,016,000 $62,500 F (Rate variance) $16,000 F (Efficiency variance) $78,500 F (Total labor variance) 1216 Financial & Managerial Accounting, 5th Edition

Problem 21-1B (Continued) Part 3 Overhead Variances Overhead controllable variance Actual overhead incurred [$1,960,000 + $1,200,000]... $ 3,160,000 Budgeted overhead [from flexible budget]... 3,276,000 Controllable overhead cost variance... $ 116,000 F Fixed overhead volume variance Budgeted fixed overhead cost [at 80% capacity]... $ 2,016,000 Fixed overhead cost applied [252,000 hrs. @ $7]... 1,764,000 Fixed overhead cost variance...$ 252,000 U Solutions Manual, Chapter 21 1217