Financial and Managerial Accounting: Information for Decisions
Financial and Managerial Accounting: Information for Decisions
6th Edition
ISBN: 9780078025761
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 21, Problem 3PSA

1.

(a)

To determine

The cost per unit for each variable overhead item and its total per unit costs.

1.

(a)

Expert Solution
Check Mark

Explanation of Solution

Calculate the variable cost per unit.

Variable overhead cost item Total cost ($) Expected production volume Cost per unit ($)
Indirect materials 45,000 15,000 3.00
Indirect labor 180,000 15,000 12.00
Power 45,000 15,000 3.00
Repairs and maintenance 90,000 15,000 6.00
Total variable overhead cost per unit 24.00

Table (1)

Thus, the total variable overhead cost per unit is $24.

(b)

To determine

The total fixed costs per month.

(b)

Expert Solution
Check Mark

Explanation of Solution

Calculate the total fixed costs per month.

Fixed overhead cost item Amount ($)
Depreciation building 24,000
Depreciation machinery 80,000
Taxes and insurance 12,000
Supervision 79,000
Total 195,000

Table (2)

Hence, the total fixed costs per month are $195,000.

2.

To determine

The flexible overheads budget for October 31, 2015.

2.

Expert Solution
Check Mark

Explanation of Solution

Prepare the flexible overheads budget for October 31, 2015 as shown below.

Flexible overhead budgets
For month ended October 31
Particulars Variable cost per unit ($) Total fixed cost ($) Budget for unit sales of 13,000 Budget for unit sales of 15,000 Budget for unit sales of 17,000
Variable overhead costs          
           
Indirect materials 3.00   39,000 45,000 51,000
Indirect labor 12.00   156,000 180,000 204,000
Power 3.00   39,000 45,000 51,000
Repairs and maintenance 6.00   78,000 90,000 102,000
Total variable cost 24.00   312,000 360,000 408,000
Fixed overhead costs          
Depreciation-building   24,000 24,000 24,000 24,000
Depreciation-machinery   80,000 80,000 80,000 80,000
Taxes and insurance   12,000 12,000 12,000 12,000
Supervision   79,000 79,000 79,000 79,000
Total fixed cost   195,000 195,000 195,000 195,000
Total overheads     507,000 555,000 603,000

Table (3)

Thus, the flexible overheads budget for October 31, 2015 is prepared as above.

3.

To determine

The direct materials cost variance, price variance, and quantity variance.

3.

Expert Solution
Check Mark

Explanation of Solution

Actual material used is 91,000 lbs.

Standard quantity of materials for actual production is 90,000 lbs.

Actual price is $5.10 per lbs.

Standard price is $5.00 per lbs.

Calculate the direct material cost variance.

Particulars Amount ($)
Actual units at actual cost (91,000×$5.10) 464,100
Standard units at standard cost (90,000×$5.00) 450,000
Direct material cost variance 14,100

Table (4)

Thus, the direct material cost variance is $14,100, which is unfavorable.

Calculate the direct material price variance.

Directmaterialpricevariance=(Actualquantity×(ActualpriceStandardprice))=91,000lb×($5.10perlb$5.00perlb)=91,000lb×$0.10perlb=$9,100

Thus, the direct material price variance is $9,100, which is unfavorable.

Calculate the direct material quantity variance.

Directmaterialquantityvariance=(ActualquantityStandardquantity)×Standardprice=(91,000lb90,000lb)×$5perlb=1,000lb×$5.00perlb=$5,000

Thus, the direct material quantity variance is $5,000, which is unfavorable.

Conclusion

Hence, the direct material cost variance, price variance, and quantity variance are $14,100 (unfavorable), $9,100 (unfavorable) and $5,000 (unfavorable) respectively.

4.

To determine

The direct labor cost, its rate, and efficiency variances.

4.

Expert Solution
Check Mark

Explanation of Solution

Actual hours used is 30,500 hours.

Standard hours for actual production are 30,000 hours.

Actual rate is $17.25 per hour.

Standard rate is $17.00 per hour.

Calculate the direct labor cost variance.

Particulars Amount ($)
Actual hours at actual cost (30,500hours×$17.25) 526,125
Standard hours at standard cost (30,000×$17.00) 510,000
Direct labor cost variance 16,125

Table (5)

Thus, the direct labor cost variance is $16,125, which is unfavorable.

Calculate the direct labor rate variance.

Directlaborratevariance=(Actualhours×(ActualrateStandardrate))=30,500hours×($17.25perlb$17.00perlb)=30,500hours×$0.25perlb=$7,625

Thus, the direct labor rate variance is $7,625, which is unfavorable.

Calculate the direct labor efficiency variance.

Directlaborefficiencyvariance=(ActualhoursStandardhours)×Standardrate=(30,50030,000)hours×$17perhour=500hours×$17.00perhour=$8,500

Thus, the direct labor efficiency variance is $8,500, which is unfavorable.

Conclusion

Hence, the direct labor cost variance, rate variance and efficiency variance is $16,125 (unfavorable), $7,625 (unfavorable) and $8,500 (unfavorable).

5.

To determine

To prepare:

The detailed overhead variance report showing the variances for individual items of overhead.

5.

Expert Solution
Check Mark

Explanation of Solution

Prepare the detailed overhead variance report showing the variances for individual items of overhead as shown below.

A Company
Overhead variance report
For month ended October 31
Expected production level 75% of capacity
Production level achieved 75% of capacity
Volume variance None
Controllable variance Flexible Actual Variances Favorable or unfavorable
Variable overhead costs        
Indirect materials 45,000 44,250 750 Favorable
Indirect labor 180,000 177,750 2,250 Favorable
Power 45,000 43,000 2,000 Favorable
Repairs and maintenance 90,000 96,000 6,000 Unfavorable
Total variable costs 360,000 361,000 1,000 Unfavorable
Fixed overhead costs        
Depreciation-building 24,000 24,000 0  
Depreciation-machinery 80,000 75,000 5,000 Favorable
Taxes and insurance 12,000 11,500 500 Favorable
Supervision 79,000 89,000 10,000 Unfavorable
Total fixed costs 195,000 199,500 4,500 Unfavorable
Total overhead costs 555,000 560,500 5,500 Unfavorable

Table (6)

Conclusion

Hence, the detailed overhead variance report showing the variances for individual items of overhead is prepared as above.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 21 Solutions

Financial and Managerial Accounting: Information for Decisions

Ch. 21 - Prob. 6DQCh. 21 - Prob. 7DQCh. 21 - Prob. 8DQCh. 21 - Prob. 9DQCh. 21 - Prob. 10DQCh. 21 - Prob. 11DQCh. 21 - Prob. 12DQCh. 21 - Prob. 13DQCh. 21 - Prob. 14DQCh. 21 - Prob. 15DQCh. 21 - Prob. 16DQCh. 21 - Prob. 1QSCh. 21 - Prob. 2QSCh. 21 - Prob. 3QSCh. 21 - Prob. 4QSCh. 21 - Prob. 5QSCh. 21 - Prob. 6QSCh. 21 - Prob. 7QSCh. 21 - Prob. 8QSCh. 21 - Prob. 9QSCh. 21 - Materials cost variances P2 Juan Company’s output...Ch. 21 - Prob. 11QSCh. 21 - Prob. 12QSCh. 21 - Prob. 13QSCh. 21 - Prob. 14QSCh. 21 - Prob. 15QSCh. 21 - Prob. 16QSCh. 21 - A Preparing overhead entries P5 Refer to the...Ch. 21 - A Total variable overhead cost variance P4 Mosaic...Ch. 21 - A Overhead spending and efficiency variances P4...Ch. 21 - Prob. 20QSCh. 21 - Prob. 21QSCh. 21 - Prob. 1ECh. 21 - Prob. 2ECh. 21 - Prob. 3ECh. 21 - Prob. 4ECh. 21 - Prob. 5ECh. 21 - Prob. 6ECh. 21 - Prob. 7ECh. 21 - Exercise 21-8 Standard unit cost; total variance...Ch. 21 - Prob. 9ECh. 21 - Prob. 10ECh. 21 - Prob. 11ECh. 21 - Prob. 12ECh. 21 - Prob. 13ECh. 21 - Exercise 21-14A Materials variances recorded and...Ch. 21 - Prob. 15ECh. 21 - Prob. 16ECh. 21 - Prob. 17ECh. 21 - Prob. 18ECh. 21 - Exercise 21-19 Computation of total overhead rate...Ch. 21 - Exercise 21-20 Computation of volume and...Ch. 21 - Exercise 21-21 Overhead controllable and volume...Ch. 21 - Prob. 22ECh. 21 - Prob. 23ECh. 21 - Prob. 1PSACh. 21 - Prob. 2PSACh. 21 - Prob. 3PSACh. 21 - Prob. 4PSACh. 21 - Prob. 5PSACh. 21 - Problem 21-6AA Materials, labor, and overhead...Ch. 21 - Prob. 1PSBCh. 21 - Prob. 2PSBCh. 21 - Prob. 3PSBCh. 21 - Prob. 4PSBCh. 21 - Prob. 5PSBCh. 21 - Problem 21-6BA Materials, labor, and overhead...Ch. 21 - Prob. 21SPCh. 21 - Prob. 1BTNCh. 21 - Prob. 2BTNCh. 21 - Prob. 3BTNCh. 21 - The reason we use the words favorable when...Ch. 21 - Prob. 5BTNCh. 21 - Prob. 6BTNCh. 21 - Prob. 7BTNCh. 21 - Prob. 8BTNCh. 21 - Prob. 9BTN
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY