Management Accounting in Australia - Solutions Chapter 8 Responsibility Accounting Chapter Review Solutions 1 F 220,500 Fixed 216,000 21,000 x $18.90 V 170,940 Variable 21,000 x $8.10 170,100 $391,440 $386,100 396,900 $ 5,340 Unfavourable $ 10,800 Favourable $5,460 Over applied Total Variance 2. ( a ) Variable Overhead = 180,000 = 200,000 $0.90 Fixed Overhead = 70,000 = $0.35 200,000 $1.25 F 72,000 Fixed 70,000 180,000 x $1.25 V 160,200 Variable 180,000 x $0.90 162,000 $232,200 $232,000 225,000 $ 200 UnF $ 7,000 UF Spending Variance Capacity Variance $ 7,200 Underapplied Total Variance 114
Chapter 8 Responsibility Accounting Normal capacity 50,000 maintenance labour hours 3. ( a ) The predetermined overhead rate: Total Overhead Recovery Rate = Total Budgeted Overhead Budgeted Level of Activity = [ $50,000 + ( $2 x 50,000 ) ] / 50,000 $ 3.00 per maintenance labour hour Variable Overhead Recovery Rate = Total Budgeted Variable Overhead Budgeted Level of Activity = $ 100,000 / 50,000 = $ 2.00 per hour Fixed Overhead Recovery Rate = Total Budgeted Fixed Overhead Budgeted Level of Activity = $ 50,000 / 50,000 = $ 1.00 per hour ( b ) Amount of Under/Overapplied Overhead: Actual Overhead Incurred = $ 161,000 Applied Overhead = $ 3.00 x 54,000 = $ 162,000 Overapplied Overhead = $ 1,000 The overapplied overhead of $1,000 is a favourable variance which may be further broken down into 2 separate variances titled: Spending Variance Capacity Variance using the following schedule. Actual Factory Overhead Incurred Flexible Budget based on Actual hours worked Variable = 54,000 x $2.00 = $108,000 Fixed = $ 50,000 Actual Hours Worked x Total Overhead rate per hour 54,000 x $ 3.00 $161,000 $158,000 $162,000 Overhead Spending Variance $3,000 U Overhead Capacity Variance $4,000 F Under/Over Applied Overhead = $1,000 F 115
Management Accounting in Australia - Solutions 4. ( a ) Budgeted direct labour hours = 140,000 Labour hours per unit = 2 Budgeted production = 70,000 units ( b ) Indirect cost recovery rate = Total budgeted indirect costs Budgeted level of activity = ( 2 x 70,000 ) + ( 4 x 70,000 ) 70,000 = $6 per unit ( c ) Amount of Under / Over Applied Overhead : Actual overhead incurred $370,000 Applied overhead 6 x 60,000 $360,000 Underapplied overhead $ 10,000 ( d ) Actual Factory Overhead Incurred Flexible Budget based on Actual hours worked Actual Hours Worked x Total Overhead rate per hour Variable = $ 240,000 120,000 x 3 Fixed = $ 140,000 370,000 $380,000 360,000 Overhead Spending Variance 10,000 F Overhead Capacity Variance 20,000 U Under/Over Applied Overhead = 10,000 U 5. High - Low Analysis: Units $ High 56,000 268,000 Low 40,000 220,000 16,000 48,000 Variable Rate = $3.00 per unit ($48,000/16,000) Fixed Cost = Total Cost - Variable Cost (production) = $220,000 - $3 (40,000) = $100,000 Actual Flexible Budget Based on Actual Hours Fixed $101,000 Fixed $100,000 Variable 152,000 Variable $150,000 (50,000 x $3.00) $253,000 $250,000 $3,000 Unfavourable Overhead Spending Variance 116
Chapter 8 Responsibility Accounting 6. Application Rate: Total Budgeted Overhead Per Unit = Budgeted Factory Overhead Budgeted Machine Hours = $ 480,000 = $ 1.20 Per Mach Hr. 400,000 Mach Hrs. Variable Rate = Budgeted Variable Overhead = $300,000 =$0.75 P/ M.Hr. Budgeted Direct Labour Hours 400,000 Mach Hs. Actual Flexible Budget based Actual Hours x Standard on Actual Hours Budgeted Rate Fixed $180,000 380,000 x $ 1.20 Variable $285,000 (380,000 x $ 0.75 ) $442,000 $465,000 $456,000 $23,000 favourable $9,000 unfavourable Overhead Spending Variance Overhead Capacity Variance $14,000 Overapplied 7. Application Rate: Total Budgeted Overhead Per Unit = Budgeted Factory Overhead Budgeted Direct Labour Hours = $ 81,000 = $ 2.70 Per D.L.H. 30,000 D.L.H. Variable Rate: = $ 1.80 ( 2/3 x $ 2.70 ) Budgeted Fixed Cost = $ 27,000 ( 1/3 x $ 81,000 ) Actual Flexible Budget based Actual Hours x Standard on Actual Hours Budgeted Rate Fixed $27,000 27,000 x $ 2.70 Variable $48,600 ( 27,000 x $ 1.80 ) $79,000 $75,600 $72,900 $3,400 unfavourable $2,700 unfavourable $6,100 Underapplied 117
Management Accounting in Australia - Solutions 8. Plant - wide recovery rate 66.67 % of D.L.C. ( $ 80,000 / $ 120,000 ) Departmental recovery rate X 25.00 % of D.L.C. ( $ 10,000 / $ 40,000 ) Y 200 % of D.L.C. ( $ 40,000 / $ 20,000 ) Z 50.00 % of D.L.H. ( $ 30,000 / $ 60,000 ) ( a ) i Job 36 R.M.C. $ 1,500 L.C. 630 F.O.A. 420 ( $ 630 D.L.C. x $0.6667 ) $ 2,550 ii Job 36 R.M.C. $ 1,500 L.C. 630 F.O.A. 550 ( $200 x $0.25 + $190 x $2.00 + $240 x $0.50 ) $ 2,680 ( b ) Application Rate: Total Budgeted Overhead Per Unit = Budgeted Factory Overhead Budgeted Direct Labour Hours = $ 36,000 = $ 0.60 Per D.L.H. 60,000 D.L.H. Variable Rate: = Budgeted Variable Overhead = $ 30,000 = $ 0.50 Per D.L.H. Budgeted Direct Labour Hours 60,000 D.L.H. Actual Flexible Budget based Actual Hours x Total Overhead on Actual Hours Rate per hour Fixed $6,000 54,000 x $ 0.60 Variable $27,000 (54,000 x $ 0.50 ) $33,800 $33,000 $32,400 $800 unfavourable $600 unfavourable Overhead Spending Variance Overhead Capacity Variance $1,400 Underapplied 118
Chapter 8 Responsibility Accounting 9. Normal Capacity Expected Capacity 80,000 Mach Hrs 64,000 Mach hrs Variable Cost $ 56,000 $ 44,800 Fixed Cost 128,000 128,000 Total Cost $ 184,000 $ 172,800 Variable Rate = $ 0.70 per unit ( $ 44,800 / 64,000 units ) $ 2.30 $ 2.70 Actual Flexible Budget based Actual Hours x Standard on Actual Mach. Hours Budgeted Rate Fixed $ 126,400 Fixed $ 128,000 72,000 x $ 2.30 Variable $ 50,200 Variable $ 50,400 (72,000 x $ 0.70) $ 176,600 $ 178,400 $ 165,600 $1,800 favourable $12,800 unfavourable Overhead Spending Variance Overhead Capacity Variance $11,000 Underapplied Actual Flexible Budget based Actual Hours x Standard on Actual Mach. Hours Budgeted Rate Fixed $ 126,400 Fixed $ 128,000 72,000 x $ 2.70 Variable $ 50,200 Variable $ 50,400 ( 72,000 x $ 0.70 ) $ 176,600 $ 178,400 $ 194,400 $1,800 favourable $16,000 favourable Overhead Spending Variance Overhead Capacity Variance $17,800 Overapplied 119
Management Accounting in Australia - Solutions 10. ( a ) Predetermined overhead rate = $350,000 = $17.50 per DLH 20,000 GENERAL JOURNAL May 31 Work in Process 29,750 Factory Overhead Control/Applied 29,750 Overhead applied $17.50 x 1,700 DLH ( b ) Flexible Budget Actual O/h @19,500 DLH Applied O/h F $202,490 F: $200,000 $17.50x19,500 V 145-080 *V: 146,250 $347,570 $346,250 $341,250 Spending Variance $1,320 unfavourable Capacity Variance $5,000 unfavourable * Variable flexible budget = $150,000 x 19,500 DLH 20,000 11. ( a ) Predetermined overhead rate = 69,000 = $11.50 per DLHr 6,000 ( b ) Total factory overhead applied $11.50 x 6,100 $ 70,150 ( c ) Fixed 39,000 6,100 x $11.50 Variable $5.00 x 6,100 units 30,500 $72,000 $69,500 70,150 $ 2,500 Unfavourable $ 650 Favourable $ 1,850 Under applied Total Variance 120
Chapter 8 Responsibility Accounting 12. ( a ) Predetermined overhead rate = 183,000 = $ 6.10 per unit 30,000 ( b ) Total factory overhead applied $ 6.10 x 29,000 $176,900 ( c ) Fixed 99,000 29,000 x $ 6.10 Variable $2.80 x 29,000 units 81,200 $175,000 $180,200 176,900 $ 5,200 Favourable $ 3,300 Unfavourable $ 1,900 Over applied Total Variance 13. ( a ) Predetermined overhead rate = 72,000 = $4.80 per unit 15,000 ( b ) Total factory overhead incurred $ 70,300 Total factory overhead applied $4.80 x 13,500 64,800 Under Applied factory overhead 5,500 ( c ) F 45,200 Fixed 45,000 13,500 x $4.80 V 27,800 Variable 27,000/15,000 x 13,500 units 24,300 $70,300 $69,300 64,800 $ 1,000 Unfavourable $ 4,500 unfavourable $5,500 Under applied Total Variance 121