Quality Fender uses a standard cost system and provide the following information: 1(Click the icon to view the information.) Quality Fender allocates manufacturing overhead to production based on standard direct labor hours. Quality Fender reported the following actual results for 2024: actual number of fenders produced, 20,000; actual variable overhead, $4,610; actual fixed overhead, $24,000; actual direct labor hours, 360. Read the requirements2. Requirement 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U).(You may need to simply the formula based on the data provided. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.) Formula Variance VOH cost variance = (1) (AC - SC) × AQ = (2) U VOH efficiency variance = (3) = (4) F Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance FOH cost variance = (5) = (6) FOH volume variance = (7) = (8) Requirement 2. Explain why the variances are favorable or unfavorable. The variable overhead cost variance is (9) because management spent (10) than budgeted for the actual production. The variable overhead efficiency variance is (11) because management used (12) direct labor hours than standard and variable overhead is applied (incurred) based on direct labor. The fixed overhead cost variance is (13) because management spent (14) than the amount budgeted for fixed overhead. The fixed overhead volume variance is (15) because management allocated (16) fixed overhead to jobs than was budgeted. 1: Data Table Static budget variable overhead $4,608 Static budget fixed overhead $23,040 Static budget direct labor hours 576 hours Static budget number of units 24,000 units Standard direct labor hours 0.024 hours per fender 2: Requirements 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable. (1) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (2) F U (3) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (4) F U (5) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (6) F U (7) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (8) F U (9) unfavorable favorable (10) more less (11) favorable unfavorable (12) fewer more (13) unfavorable favorable (14) more less (15) unfavorable favorable (16) less more
Quality Fender uses a standard cost system and provide the following information: 1(Click the icon to view the information.) Quality Fender allocates manufacturing overhead to production based on standard direct labor hours. Quality Fender reported the following actual results for 2024: actual number of fenders produced, 20,000; actual variable overhead, $4,610; actual fixed overhead, $24,000; actual direct labor hours, 360. Read the requirements2. Requirement 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U).(You may need to simply the formula based on the data provided. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.) Formula Variance VOH cost variance = (1) (AC - SC) × AQ = (2) U VOH efficiency variance = (3) = (4) F Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance FOH cost variance = (5) = (6) FOH volume variance = (7) = (8) Requirement 2. Explain why the variances are favorable or unfavorable. The variable overhead cost variance is (9) because management spent (10) than budgeted for the actual production. The variable overhead efficiency variance is (11) because management used (12) direct labor hours than standard and variable overhead is applied (incurred) based on direct labor. The fixed overhead cost variance is (13) because management spent (14) than the amount budgeted for fixed overhead. The fixed overhead volume variance is (15) because management allocated (16) fixed overhead to jobs than was budgeted. 1: Data Table Static budget variable overhead $4,608 Static budget fixed overhead $23,040 Static budget direct labor hours 576 hours Static budget number of units 24,000 units Standard direct labor hours 0.024 hours per fender 2: Requirements 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable. (1) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (2) F U (3) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (4) F U (5) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (6) F U (7) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (8) F U (9) unfavorable favorable (10) more less (11) favorable unfavorable (12) fewer more (13) unfavorable favorable (14) more less (15) unfavorable favorable (16) less more
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Chapter3: Cost Behavior
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
Quality Fender uses a standard cost system and provide the following information:
1(Click
the icon to view the information.)Quality
Fender allocates manufacturing Quality
Fender reported the following actual results for
2024:
actual number of fenders produced,
20,000;
actual variable overhead,
$4,610;
actual fixed overhead,
$24,000;
actual direct labor hours,
360.
Read the
requirements2.
Requirement 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.
Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U).(You may need to simply the formula based on the data provided. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.)
|
|
|
Formula
|
|
Variance
|
|
|---|---|---|---|---|---|
|
VOH cost variance
|
=
|
(1) (AC - SC) × AQ
|
=
|
|
(2) U
|
|
VOH efficiency variance
|
=
|
(3)
|
=
|
|
(4) F
|
Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)
|
|
|
Formula
|
|
Variance
|
|
|---|---|---|---|---|---|
|
FOH cost variance
|
=
|
(5)
|
=
|
|
(6)
|
|
FOH volume variance
|
=
|
(7)
|
=
|
|
(8)
|
Requirement 2. Explain why the variances are favorable or unfavorable.
The variable overhead cost variance is
because management spent
than budgeted for the actual production.
(9)
(10)
The variable overhead efficiency variance is
because management used
direct labor hours than standard and variable overhead is applied (incurred) based on direct labor.
(11)
(12)
The fixed overhead cost variance is
because management spent
than the amount budgeted for fixed overhead.
(13)
(14)
The fixed overhead volume variance is
because management allocated
fixed overhead to jobs than was budgeted.
(15)
(16)
1: Data Table
|
Static budget variable overhead
|
$4,608
|
|---|---|
|
Static budget fixed overhead
|
$23,040
|
|
Static budget direct labor hours
|
576 hours
|
|
Static budget number of units
|
24,000 units
|
|
Standard direct labor hours
|
0.024 hours per fender
|
2: Requirements
|
1.
|
Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.
|
|
2.
|
Explain why the variances are favorable or unfavorable.
|
(1)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(2)
F
U
(3)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(4)
F
U
(5)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(6)
F
U
(7)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(8)
F
U
(9)
unfavorable
favorable
(10)
more
less
(11)
favorable
unfavorable
(12)
fewer
more
(13)
unfavorable
favorable
(14)
more
less
(15)
unfavorable
favorable
(16)
less
more
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