FUND.ACCT.PRIN.(LOOSELEAF)-W/ACCESS
FUND.ACCT.PRIN.(LOOSELEAF)-W/ACCESS
24th Edition
ISBN: 9781260260724
Author: Wild
Publisher: MCG
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Chapter 23, Problem 3APSA
To determine

Flexible Budget:

A flexible budget is prepared for more than one level of production and it is flexible in nature. Flexible budget can vary according to the actual level of production. It eliminates the volume variance between the budgeted values and actual result of production.

Material Price Variance:

At the actual quantity, the difference between the actual cost and standard cost is known as material price variance.

Material Quantity Variance:

The material quantity variance measures the efficiency of a production in terms of material utilization. It is computed by determining the difference between the standard quantity to used and actual quantity of material used in the production at the standard rate.

Labor Rate Variance:

At the actual direct labor hours, the variance between the actual direct labor cost based on actual rate incurred and the budgeted direct labor cost based on standard rate is called direct labor cost variance.

Direct Labor Efficiency Variance:

Direct labor efficiency variance measures the efficiency in utilization of direct labor costs by determining the difference between the actual labor hours and the direct labor hours allowed at the standard rate.

1. Determine the cost per unit of each variable overhead item and its total per unit costs and identify the total fixed costs per month.

2. Preparing flexible budgets showing the amounts of each variable and fixed cost at the 65%, 75% and 85% capacity levels.

3. Computation of direct materials cost variance, showing price and quantity variances.

4. Computation of direct labor cost variance, showing rate and efficiency variances.

5. Preparation of overhead variance report that shows the variances for individual items of overhead.

Expert Solution & Answer
Check Mark

Answer to Problem 3APSA

Solution:

1. The total per unit costs is $24 and the total fixed cost per month is $195,000.

2. The total overhead cost at 65%, 75%, and 85% is $507,000, $555,000, and $603,000 respectively.

3. The direct material cost variance is $14,100 (U) with unfavorable price variance of $9,100 and quantity variance of $5,000.

4. Direct labor cost variance is $16,125 (U) with unfavorable rate variance of $7,625 and efficiency variance of $8,500.

5. Autuan Company has favorable overhead volume variance of $74,000 and unfavorable controllable variance of $5,500.

Explanation of Solution

1.

    Overhead items
    Variable cost per unit
    Fixed cost per month
    Variable overhead costs


    Indirect materials
    $3.00

    Indirect labor
    $12.00

    Power
    $3.00

    Repairs and maintenance
    $6.00

    Total variable overhead costs $24.00




    Fixed overhead costs


    Depreciation − Building

    $24,000
    Depreciation − Machinery

    $80,000
    Taxes and insurance

    $12,000
    Supervision

    $79,000
    Total fixed overhead costs
    $195,000
    AUTUAN COMPANY
    Flexible Overhead Budgets
    For the Month Ended October 31.

    Flexible Budget
    Flexible Budget at Capacity Level of
    Variable cost per unit
    Fixed cost per month

    65%
    75%
    85%
    Production (in units)
    1 unit

    13,000
    15,000
    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 overhead costs $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 overhead costs
    $195,000
    $195,000
    $195,000
    $195,000
    Total Overhead Costs


    $507,000
    $555,000
    $603,000
    Predetermined overhead rate per standard direct labor hour


    $18.50

3. Computation of direct materials cost variance, including its price and quantity variances

4. Computation of direct labor cost variance, including its rate and efficiency variances

  Direct Labor Rate Variance = Actual Hours X (Actual Rate  Standard Rate)                                            = 30,500 hours X ($17.25  $17.00)                                            = $7,625 Unfavorable

  Direct Labor Efficiency Variance = Standard Rate X ( Actual Hours  Standard Hours)                                                     = $17.00 X ( 30,500 hours  30,000 hours)                                                     = $8,500 UnfavorableDirect Labor Cost Variance= Direct Labor Rate Variance + Direct Labor Efficiency Variance= $7,625 + $8,500= $16,125Unfavorable

5.

    AUTUAN COMPANY
    Overhead Variance Report
    For the Month Ended October 31.
    Overhead Volume Variance
    Expected production level
    75% of capacity 15,000 units
    Production level achieved
    85% of capacity 17,000 units
    Budgeted fixed overhead (30,000 hrs. X $18.50)
    $555,000
    Fixed overhead applied (34,000 hrs. X $18.50)
    $629,000
    Volume Variance
    $74,000 F

    Overhead Controllable Variance Flexible Budget
    Actual
    Results
    Variances
    Variable overhead costs



    Indirect materials
    $45,000
    $44,250
    $750 F
    Indirect labor
    $180,000
    $177,750
    $2,250 F
    Power
    $45,000
    $43,000
    $2,000 F
    Repairs and maintenance
    $90,000
    $96,000
    $6,000 U
    Total variable overhead costs
    $360,000
    $361,000
    $1,000 U




    Fixed overhead costs



    Depreciation − Building
    $24,000
    $24,000
    0
    Depreciation − Machinery
    $80,000
    $75,000
    $5,000 F
    Taxes and insurance
    $12,000
    $11,500
    $500 F
    Supervision
    $79,000
    $89,000
    $10,000 U
    Total fixed overhead costs
    $195,000
    $199,500
    $4,500 U
    Total Overhead costs $555,000
    $560,500
    $5,500 U
Conclusion

The labor rate variance is $7,625 Unfavorable

The direct labor efficiency variance is $8,500 Unfavorable

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Chapter 23 Solutions

FUND.ACCT.PRIN.(LOOSELEAF)-W/ACCESS

Ch. 23 - Prob. 11DQCh. 23 - Prob. 12DQCh. 23 - Prob. 13DQCh. 23 - How can the manager of advertising sales at Google...Ch. 23 - Prob. 15DQCh. 23 - Prob. 16DQCh. 23 - Is it possible to evaluate a cost center’s...Ch. 23 - Prob. 18DQCh. 23 - Prob. 1QSCh. 23 - Prob. 2QSCh. 23 - Prob. 3QSCh. 23 - Prob. 4QSCh. 23 - Prob. 5QSCh. 23 - Prob. 6QSCh. 23 - Prob. 7QSCh. 23 - Prob. 8QSCh. 23 - Prob. 9QSCh. 23 - Prob. 10QSCh. 23 - Prob. 11QSCh. 23 - Prob. 12QSCh. 23 - Prob. 13QSCh. 23 - Prob. 14QSCh. 23 - Volume variance P3 Refer to information in QS...Ch. 23 - Prob. 16QSCh. 23 - Prob. 17QSCh. 23 - Prob. 18QSCh. 23 - Prob. 19QSCh. 23 - Prob. 20QSCh. 23 - Prob. 21QSCh. 23 - Prob. 22QSCh. 23 - Prob. 23QSCh. 23 - Prob. 24QSCh. 23 - Exercise 23-1 Management by exception C1 Resset...Ch. 23 - Prob. 2ECh. 23 - Exercise 23-2 Preparing flexible budgets P1 Tempo...Ch. 23 - Prob. 4ECh. 23 - Prob. 5ECh. 23 - Prob. 6ECh. 23 - Prob. 7ECh. 23 - Prob. 8ECh. 23 - Prob. 9ECh. 23 - Prob. 10ECh. 23 - Prob. 11ECh. 23 - Prob. 12ECh. 23 - Exercise 23-13 Computing and interpreting...Ch. 23 - Prob. 14ECh. 23 - Exercise 23-15 Direct materials and direct labor...Ch. 23 - Prob. 16ECh. 23 - Prob. 17ECh. 23 - Exercise 23-18A Detailed overhead variances P5...Ch. 23 - Prob. 19ECh. 23 - Prob. 20ECh. 23 - Prob. 21ECh. 23 - Prob. 22ECh. 23 - Prob. 23ECh. 23 - Prob. 1APSACh. 23 - Prob. 2APSACh. 23 - Prob. 3APSACh. 23 - Prob. 4APSACh. 23 - Prob. 5APSACh. 23 - Prob. 6APSACh. 23 - Prob. 2BPSBCh. 23 - Prob. 3BPSBCh. 23 - Prob. 4BPSBCh. 23 - Prob. 5BPSBCh. 23 - Prob. 6BPSBCh. 23 - Prob. 23SPCh. 23 - Flexible budgets and standard costs emphasize the...Ch. 23 - Prob. 2AACh. 23 - Prob. 3AACh. 23 - Prob. 1BTNCh. 23 - Prob. 2BTNCh. 23 - Prob. 3BTNCh. 23 - Prob. 4BTNCh. 23 - Prob. 5BTNCh. 23 - Training employees to use standard amounts of...
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