Required: Compute the company's activity variances for May. (Hint: Refer to Exhibit 9-6.)
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- Refer to the data in Exercise 9.15. Required: 1. Compute overhead variances using a two-variance analysis. 2. Compute overhead variances using a three-variance analysis. 3. Illustrate how the two- and three-variance analyses are related to the four-variance analysis. Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 120,000 units requiring 480,000 direct labor hours. (Practical capacity is 500,000 hours.) Annual budgeted overhead costs total 787,200, of which 556,800 is fixed overhead. A total of 119,400 units using 478,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were 230,600, and actual fixed overhead costs were 556,250. Required: 1. Compute the fixed overhead spending and volume variances. How would you interpret the spending variance? Discuss the possible interpretations of the volume variance. Which is most appropriate for this example? 2. Compute the variable overhead spending and efficiency variances. How is the variable overhead spending variance like the price variances of direct labor and direct materials? How is it different? How is the variable overhead efficiency variance related to the direct labor efficiency variance?Calculating factory overhead: two variances Monrovia Manufacturing Inc. normally produces 10,000 units of product A each month. Each unit requires 4 hours of direct labor, and factory overhead is applied on a direct labor hour basis. Fixed costs and variable costs in factory overhead at the normal capacity are 10 and 5 per unit, respectively. Cost and production data for June follow: a. Calculate the flexible-budget variance. b. Calculate the production-volume variance. c. Was the total factory overhead under- or overapplied? By what amount?(Appendix) Overhead variances—four variance Mobile Manufacturing Inc. manufactures a small electric motor that is a replacement part for the more popular gas furnaces. The standard cost card shows the product requirements as follows: Factory overhead rates are based on normal 100% capacity and the following flexible budgets: The company produced 3,500 units, using 18,375 direct labor hours and incurring the following overhead costs: Required: Calculate the factory overhead: variable-spending, variable-efficiency, fixed-spending, and production-volume variances. Does the net variance represent under- or overapplied factory overhead?
- Calculating factory overhead: two variances Munoz Manufacturing Co. normally produces 10,000 units of product X each month. Each unit requires 2 hours of direct labor, and factory overhead is applied on a direct labor hour basis. Fixed costs and variable costs in factory overhead at the normal capacity are 2.50 and 1.50 per direct labor hour, respectively. Cost and production data for May follow: a. Calculate the flexible-budget variance. b. Calculate the production-volume variance. c. Was the total factory overhead under- or overapplied? By what amount?Direct labor time variance Maywood City Police uses variance analysis to monitor police staffing. The following table identifies three common police activities, the standard time to perform each activity, and their actual frequency to establish the expected cost to serve these activities. Police Activity Standard Hours per Activity Actual Activities for Year Total Employee Hours Theft 0.60 7,000 4,200 Arrest 1.50 18,000 27,000 Patrol activities 0.30 9,000 2,700 33,900 The police are paid 25 per hour. The actual amount of hours per activity for the year were as follows: Police Activity Actual Hours per Activity Theft 0.75 Arrest 2.00 Patrol activities 0.40 A. Determine the total budgeted cost to perform the three police activities. B. Determine the total actual cost to perform the three police activities. C. Determine the direct labor time variance. D. What does the time variance suggest?Variance interpretation You have been asked to investigate some cost problems in the Assembly Department of Ruthenium Electronics Co., a consumer electronics company. To begin your investigation, you have obtained the following budget performance report for the department for the last quarter. Ruthenium Electronics Co.Assembly Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances Direct labor 157,500 227,500 70,000 U Direct materials 297,500 385,000 87,500 U Total 455,000 612,500 157,500 U You also obtained the following reports: Ruthenium Electronics Co.Purchasing Department Quarterly Budget Performance Report Actual Quantity at Standard Rates Actual Quantity at Actual Rates Price Variance Direct materials 437,500 385,000 (52,500) F Ruthenium Electronics Co.Fabrication Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances Direct labor 245,000 203,000 (42,000) F Direct materials 140,000 140,000 0 Total 385,000 343,000 (42,000) F You also interviewed the Assembly Department supervisor. Excerpts from the interview follow: Q: What explains the poor performance in your department? A: Listen, youve got to understand what its been like in this department recently. Lately, it seems no matter how hard we try, we cant seem to make the standards. Im not sure what is going on, but weve been having a lot of problems lately. Q: What kind of problems? A: Well, for instance, all this Quarter weve been requisitioning purchased parts from the material storeroom, and the parts just didnt fit together very well. Im not sure what is going on, but during most of this quarter, weve had to scrap and sort purchased partsjust to get our assemblies put together. Naturally, all this takes time and material. And thats not all. Q: Go on. A: All this Quarter the work we've been receiving from the Fabrication Department has been shoddy. I mean, maybe around 20% of the stuff that comes in from Fabrication just cant be assembled. The fabrication is all wrong. As a result we've had to scrap and rework a lot of the stuff. Naturally, this has just shot our quantity variances. Interpret the variance reports in light of the comments by the Assembly Department supervisor.
- Preparing a performance report Use the flexible budget prepared in P7-6 for the 31,000-unit level and the actual operating results listed below for the 31,000-unit level. Required: 1. Prepare a performance report. 2. List the major reasons why the actual operating income at 31,000 units differs from the master budget operating income at 30,000 units in Figure 7-12. 3. Given the level at which the company operated, how was its cost control? Item Direct materials: Direct labor:Determining Budgeted Overhead The overhead application rate for a company is 10 per unit, made up of 6 per unit of fixed overhead and 4 per unit of variable overhead. Normal capacity is 10,000 units. In one month there was a favorable flexible budget variance of 2,500. Actual overhead for the month was 110,000 and actual units produced were 13,125. Based on this information, determine the amount of the budgeted overhead for the actual level of production.Flexible Budget for Various Levels of Production Budgeted amounts for the year: Required: 1. Prepare a flexible budget for 3,500, 4,000, and 4,500 units. 2. CONCEPTUAL CONNECTION Calculate the unit cost at 3,500, 4,000, and 4,500 units. (Note: Round unit costs to the nearest cent.) What happens to unit cost as the number of units produced increases?
- Sales Variances; Flexible-Budget Variance; Review of Chapter 14 Robinson Company hastwo products, A and B. Robinson’s budget for August follows:Master BudgetProduct A Product BSales $240,000 $300,000Variable cost 140,000 180,000Contribution margin $100,000 $120,000Fixed cost 80,000 40,000Operating income $ 20,000 $ 80,000Selling price $ 120 $ 50On September l, these operating results for August were reported:Operating ResultsProduct A Product BSales $180,400 $341,120Variable cost 106,600 216,480Contribution margin $ 73,800 $124,640Fixed cost 80,000 40,000Operating income $ (6,200) $ 84,640Units sold 1,640 6,560Required1. For each product, determine the following variances measured in dollars of contribution margin:a. Flexible-budget variance.b. Sales volume variance.c. Sales quantity variance.d. Sales mix variance.2. Explain the amount of the flexible-budget variance using the amounts of the selling price and variablecost variances.E 8-16 Determining Budgeted Overhead The overhead application rate for a company is $10 per unit, made up of $6 per unit of fixed overhead and $4 per unit of variable over- head. Normal capacity is 10,000 units. In one month there was a favorable flexible budget variance of $2,500. Actual overhead for the month was $110,000 and actual units produced were 13,125. Based on this information, determine the amount of the budgeted overhead for the actual level of production. Use this format:Exercise 10-3 Prepare a Report Showing Revenue and Spending Variances [LO10-3] Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,700 pounds of oysters in August. The company’s flexible budget for August appears below: Quilcene OysteriaFlexible BudgetFor the Month Ended August 31 Actual pounds (q) 7,700 Revenue ($4.20q) $ 32,340 Expenses: Packing supplies ($0.35q) 2,695 Oyster bed maintenance ($3,000) 3,000 Wages and salaries ($2,300 + $0.40q) 5,380 Shipping ($0.55q) 4,235 Utilities ($1,250) 1,250 Other ($460 + $0.01q) 537 Total expense 17,097 Net operating income $ 15,243 The actual results for August appear below: Quilcene OysteriaIncome StatementFor the Month Ended August 31 Actual pounds 7,700 Revenue $ 26,700 Expenses: Packing supplies 2,865 Oyster bed maintenance 2,860 Wages and salaries 5,790 Shipping 3,965 Utilities 1,060 Other…
