Concept explainers
Applying
Lane Company manufactures a single product that requires a great deal of hand labor. Overhead cost is applied on the basis of standard direct labor-hours. The budgeted variable manufacturing overhead is $2 per direct labor-hour and the budgeted fixed manufacturing overhead is $480,000 per year.
The standard quantity of materials is 3 pounds per unit and the
Required:
- Compute the predetermined overhead rate for the year Break the rate down into variable and fixed elements.
- Prepare a standard cost card for the company’s product; show the details for all
manufacturing costs on your standard cost card. - Do the following:
- Compute the standard direct labor-hours allowed for the year’s production.
- Complete the following Manufacturing Overhead T-account for the year:
- Determine the reason for any underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.
- Suppose the company had chosen 65,000 direct labor-hours as the denominator activity rather than 60,000 hours. State which, if any, of the variances computed in (4) above would have changed, and explain how the variance(s) would have changed. No computations are necessary.
1
The predetermined overhead rate for the year. Break the rate down into variable and fixed elements.
Introduction: Overhead means the ongoing business expenses which are not directly incurred while producing product or service. Overhead is important while preparing budget but it is also used to determine the amount company must charge in order to incur profit.
Answer to Problem 11A.8P
Total direct labor cost is $10, variable overhead labor cost is $2, and Fixed overhead labor cost is $8.
Explanation of Solution
2
Prepare a standard cost card for the company’s product; show the details for all manufacturing cost on your standard cost card.
Introduction: Overhead means the ongoing business expenses which are not directly incurred while producing product or service. Overhead is important while preparing budget but it is also used to determine the amount company must charge in order to incur profit.
Answer to Problem 11A.8P
Standard labor cost per unit is $54
Explanation of Solution
3
Compute the standard direct-labor allowed for the year’s production and complete manufacturing overhead T-account of the year.
Introduction: Overhead means the ongoing business expenses which are not directly incurred while producing product or service. Overhead is important while preparing budget but it is also used to determine the amount company must charge in order to incur profit.
Answer to Problem 11A.8P
Standard direct labor hour is $63,000, under applied cost is $630,000, and over applied cost is $23,500
Explanation of Solution
Under applied cost is computed below:
Over applied cost is computed below:
4
The reason for any under applied and over applied overhead for the year.
Introduction: Overhead means the ongoing business expenses which are not directly incurred while producing product or service. Overhead is important while preparing budget but it is also used to determine the amount company must charge in order to incur profit.
Answer to Problem 11A.8P
Variable overhead rate variance is $6,500, Variable overhead efficiency variance is $4,000, Budget variance is $3,000, and volume variance is $24,000.
Explanation of Solution
5
Direct-labor hours changed from 60,000 to 65,000 hours. Give explanation for change in variances.
Introduction: Overhead means the ongoing business expenses which are not directly incurred while producing product or service. Overhead is important while preparing budget but it is also used to determine the amount company must charge in order to incur profit.
Answer to Problem 11A.8P
Change in direct labor hours changed few cost and variances like variable overhead labor cost, fixed overhead budget variance and fixed overhead volume variance.
Explanation of Solution
If direct-labor hours would have been changed from 60,000 to 65,000 as denominators activity then following cost will be changed such as variable overhead labor cost, fixed overhead budget variance and fixed overhead volume variance.
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Chapter 11A Solutions
MANAGERIAL ACCT.F/MANAGERS>CUSTOM<
- 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?arrow_forwardDirect materials variances Bellingham Company produces a product that requires 2.5 standard pounds per unit. The standard price is 3.75 per pound. If 15,000 units used 36,000 pounds, which were purchased at 4.00 per pound, what is the direct materials (A) price variance, (B) quantity variance, and (C) cost variance?arrow_forwardVariances Refer to Cornerstone Exercise 9.6. Required: 1. Calculate the variable overhead spending variance using the formula approach. (If you compute the actual variable overhead rate, carry your computations out to five significant digits and round the variance to the nearest dollar.) 2. Calculate the variable overhead efficiency variance using the formula approach. 3. Calculate the variable overhead spending variance and variable overhead efficiency variance using the three-pronged graphical approach. 4. What if 26,100 direct labor hours were actually worked in February? What impact would that have had on the variable overhead spending variance? On the variable overhead efficiency variance? Standish Company manufactures consumer products and provided the following information for the month of February: Required: 1. Calculate the fixed overhead spending variance using the formula approach. 2. Calculate the volume variance using the formula approach. 3. Calculate the fixed overhead spending variance and volume variance using the three-pronged graphical approach. 4. What if 129,600 units had actually been produced in February? What impact would that have had on the fixed overhead spending variance? On the volume variance?arrow_forward
- 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?arrow_forwardCalculating 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?arrow_forwardABC Inc. spent a total of $48,000 on factory overhead. Of this, $28,000 was fixed overhead. ABC Inc. had budgeted $27,000 for fixed overhead. Actual machine hours were 5.000. Standard hours for units made were 4,800. The standard variable overhead rate was $4.10. What is the variable overhead rate variance?arrow_forward
- Calculating amount of factory overhead applied to work in process The overhead application rate for a company is 2.50 per unit, made up of 1.00 for fixed overhead and 1.50 for variable overhead. Normal capacity is 10,000 units. In one month, there was an unfavorable flexible budget variance of 200. Actual overhead for the month was 27,000. What was the amount of the budgeted overhead for the actual level of production?arrow_forwardRefer to Exercise 8.27. At the end of the year, Meliore, Inc., actually produced 310,000 units of the standard model and 115,000 of the deluxe model. The actual overhead costs incurred were: Required: Prepare a performance report for the period. In an attempt to improve budgeting, the controller for Meliore, Inc., has developed a flexible budget for overhead costs. Meliore, Inc., makes two types of products, the standard model and the deluxe model. Meliore expects to produce 300,000 units of the standard model and 120,000 units of the deluxe model during the coming year. The standard model requires 0.05 direct labor hour per unit, and the deluxe model requires 0.08. The controller has developed the following cost formulas for each of the four overhead items: Required: 1. Prepare an overhead budget for the expected activity level for the coming year. 2. Prepare an overhead budget that reflects production that is 10 percent higher than expected (for both products) and a budget for production that is 20 percent lower than expected.arrow_forward(Appendix) Calculating factory overhead: four variances Atlanta Adhesives Inc. budgets 15,000 direct labor hours for the year. The total overhead budget is expected to amount to 42,000. The standard cost for a unit of the companys product estimates the variable overhead as follows: The actual data for the period follow: Using the four-variance method, calculate the overhead variances. (Hint: First compute the budgeted fixed overhead rate.)arrow_forward
- Refer to Cornerstone Exercise 8.13. In March, Nashler Company produced 163,200 units and had the following actual costs: Required: 1. Prepare a performance report for Nashler Company comparing actual costs with the flexible budget for actual units produced. 2. What if Nashler Companys actual direct materials cost were 1,175,040? How would that affect the variance for direct materials? The total cost variance?arrow_forwardRefer to the data in Problem 9.34. Vet-Pro, Inc., also uses two different types of direct labor in producing the anti-anxiety mixture: mixing and drum-filling labor (the completed product is placed into 50-gallon drums). For each batch of 20,000 gallons of direct materials input, the following standards have been developed for direct labor: The actual direct labor hours used for the output produced in March are also provided: Required: 1. Compute the direct labor mix and yield variances. (Round standard price of yield to four significant digits.) 2. Compute the total direct labor efficiency variance. Show that the total direct labor efficiency variance is equal to the sum of the direct labor mix and yield variances. Vet-Pro, Inc., produces a veterinary grade anti-anxiety mixture for pets with behavioral problems. Two chemical solutions, Aranol and Lendyl, are mixed and heated to produce a chemical that is sold to companies that produce the anti-anxiety pills. The mixture is produced in batches and has the following standards: During March, the following actual production information was provided: Required: 1. Compute the direct materials mix and yield variances. 2. Compute the total direct materials usage variance for Aranol and Lendyl. Show that the total direct materials usage variance is equal to the sum of the direct materials mix and yield variances.arrow_forwardStandard cost summary; materials and labor cost variances Perkins Processors Inc. produces an average of 10,000 units each month. The factory standards are 20,000 hours of direct labor and 10,000 pounds of materials for this volume. The standard cost of direct labor is 9.00 per hour, and the standard cost of materials is 4.00 per pound. The standard factory overhead at this level of production is 20,000. During the current month the production and cost reports reflected the following information: On the basis of this information: 1. Prepare a standard cost summary. 2. Calculate the materials (use the materials purchase price variance) and labor cost variances, and indicate whether they are favorable or unfavorable, using the formulas on pages 421422 and 424.arrow_forward
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