The cheque-clearing office of Pay Loans Company is responsible for processing all cheques that come to the company for payment. Managers at the company believe that variable overhead costs are essentially proportional to the number of labour-hours worked in the office, so labour-hours are used as the activity base when preparing variable overhead budgets and performance reports. Data for October, the most recent month, appear below: Budgeted labour-hours 1,330 Actual labour-hours Standard labour-hours allowed for the actual number of cheques processed 1,285 1,350 Variable overhead costs: Office supplies Staff coffee lounge Indirect labour Total variable overhead cost Cost Formula Actual Costs (per labour- hour) Incurred in October $ 0.60 0.20 2.20 $ 780 $ 3.00 317 3,527 $4,624 Fixed overhead at Pay Loans Company consists entirely of supervisory salaries and is applied at a rate of $7 per direct labour-hour. Actual fixed overhead costs totalled $7,350 in October, while the flexible budget was $7,000 for the month. Required Prepare an overhead performance report for October for the cheque-clearing office that includes both spending and efficiency variances for variable overhead and the budget variance for fixed overhead. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
The cheque-clearing office of Pay Loans Company is responsible for processing all cheques that come to the company for payment. Managers at the company believe that variable overhead costs are essentially proportional to the number of labour-hours worked in the office, so labour-hours are used as the activity base when preparing variable overhead budgets and performance reports. Data for October, the most recent month, appear below: Budgeted labour-hours 1,330 Actual labour-hours Standard labour-hours allowed for the actual number of cheques processed 1,285 1,350 Variable overhead costs: Office supplies Staff coffee lounge Indirect labour Total variable overhead cost Cost Formula Actual Costs (per labour- hour) Incurred in October $ 0.60 0.20 2.20 $ 780 $ 3.00 317 3,527 $4,624 Fixed overhead at Pay Loans Company consists entirely of supervisory salaries and is applied at a rate of $7 per direct labour-hour. Actual fixed overhead costs totalled $7,350 in October, while the flexible budget was $7,000 for the month. Required Prepare an overhead performance report for October for the cheque-clearing office that includes both spending and efficiency variances for variable overhead and the budget variance for fixed overhead. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter8: Budgeting For Planning And Control
Section: Chapter Questions
Problem 13CE: Nashler Company has the following budgeted variable costs per unit produced: Budgeted fixed overhead...
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:The cheque-clearing office of Pay Loans Company is responsible for processing all cheques that come to the company for payment.
Managers at the company believe that variable overhead costs are essentially proportional to the number of labour-hours worked in
the office, so labour-hours are used as the activity base when preparing variable overhead budgets and performance reports. Data for
October, the most recent month, appear below:
Budgeted labour-hours
1,330
Actual labour-hours
1,285
Standard labour-hours allowed for the actual number of cheques processed
1,350
Variable overhead costs:
Office supplies
Staff coffee lounge
Indirect labour
Total variable overhead cost
Cost
Formula
Actual
Costs
(per Incurred
labour-
hour)
in
October
$ 0.60
0.20
2.20
$ 780
$ 3.00
317
3,527
$4,624
Fixed overhead at Pay Loans Company consists entirely of supervisory salaries and is applied at a rate of $7 per direct labour-hour.
Actual fixed overhead costs totalled $7,350 in October, while the flexible budget was $7,000 for the month.
Required.
Prepare an overhead performance report for October for the cheque-clearing office that includes both spending and efficiency
variances for variable overhead and the budget variance for fixed overhead. (Indicate the effect of each variance by selecting "F" for
favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
PAY LOANS COMPANY
Overhead Performance Report
For the Month Ended October 31
Breakdown of the Total Variance
Overhead costs
Cost Actual Costs
Formula Incurred for
(per labour- 1,285 Labour-
hour)
Hours
Flexible
Budget Based
on 1,285
Labour-Hours
Flexible
Budget Based
on 1,350
Labour-Hours
Total Variance
Spending (Budget)
Variance
Efficiency Variance
Variable overhead costs:
Office supplies
$
0.60
$
780
Staff coffee lounge
0.20
317
Indirect labour
2.20
3,527
Total variable overhead cost
$
3.00 $
4,624
Fixed overhead costs:
Supervisory salaries
Total overhead cost
7,350
$
11,974
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