AYB225 Lecture Notes - Lecture 6: Financial Statement, Pro Rata, Subledger

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5 Jul 2013

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Lecture 6 standing costing and overheads; disposition of variances. Standard costing overhead compared with dm, dl. Price variances which were calculated for direct materials and direct labour will be calculated for both fixed and variable overhead. They have the same meaning as they had last week. Efficiency variances calculated last week for direct materials and direct labour will be calculated for variable overhead only. It also has the same meaning as the efficiency variance from last week: we will not calculate a fixed overhead efficiency variance. Fixed overhead: an additional variance (which was not calculated for direct materials and direct labour) will be calculated: this variance is the fixed overhead volume variance. A fixed overhead volume variance occurs whenever actual production budgeted production. If actual is greater than budget the variance is favourable. If actual is less than budget, the variance is unfavourable.

Related Questions

1. Anderson Ltd. manufacture gearboxes for use in cars. At thestart of the

year, the management of Anderson Ltd. estimated that its costswould be:

This was based on the following:

Direct labour

Direct material

Variable production overhead

Fixed production overhead

Administration overhead

80 employees

2000 hours worked by each employee

40 000 gearboxes manufactured in the year as budgetedproduction

Â£200 unit selling price.

You have recently been employed by the company to establish astandard

costing system. At the end of the year you were able to extractthe

following information:

â¢ labour costs Â£4.40/hour

â¢ 32 000 units sold

â¢ Â£210/unit selling price

â¢ 160 000 hours were worked

â¢ variable production overheads were Â£640 000

â¢ fixed production overheads were Â£810 000

â¢ administration costs were Â£350 000

â¢ raw material prices were 10% higher than expected

â¢ total expenditure on raw material was Â£3.696 M

â¢ there were no opening or closing stocks of raw materials.

(a) You are required to prepare an operating statement for theyear, using

a standard absorption costing system.

Calculations should proceed according to the followingheadings

suffixing âAâ for Adverse and âFâ for Favourable whereappropriate.

Resulting quantities required for the statement are then enteredin the

âOperating Statement for the Yearâ sheet shown on page 6.

(All working must be shown.)

(Budgeted) Costs

Unit cost

Â£

Direct labour

Direct materials

Variable overhead

Fixed overhead

Admin. overhead

Total

Selling price

Standard profit (per unit)

Budgeted profit

Sales price variance

Sales quantity variance

Cost Variances

Labour Variances

Standard hours =

Standard cost/hour =

Rate variance =

Standard time =

Actual time =

Time variance =

Efficiency variance =

Material Variances

Material price =

Material usage â standard =

â actual =

Material usage variance =

Variable overheads

Standard cost =

Actual cost =

Expenditure variance =

Efficiency variance =

Fixed overheads

Expenditure variance =

Volume variance =

Admin overhead (treat as fixed)

Expenditure variance =

Volume variance =

Operating Statement for the Year

Â£â000 Â£â000

Budgeted Profit

Sales variance âprice

â quantity

Cost variances

Labour â rate

â efficiency

Material â price

â usage

Variable â expenditure

â efficiency

Fixed â expenditure

â volume

Admin â expenditure

â volume

Actual Profit

(b) Give reasons/explanations why the variances in (a) abovehave

occurred for the following:

(i) material price

(ii) labour efficiency

(iii) fixed overhead expenditure.

be more suitable. He asks you to outline the strengths and

weaknesses of both systems and recommend the most suitable.

(d) The Board of Anderson Ltd. want to adopt âidealâ standardsbecause

they feel it will encourage harder work. You are asked toproduce a

brief report giving your views.

Overhead Variances, Four-Variance Analysis, Journal Entries Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294,700 is fixed overhead. Required: 1. Calculate the fixed overhead spending and volume variances. Fixed Overhead Spending Variance $ Fixed Overhead Volume Variance $ 2. Calculate the variable overhead spending and efficiency variances. Variable Overhead Spending Variance $ Variable Overhead Efficiency Variance $ 3. Prepare the journal entries that reflect the following: Assignment of overhead to production Recognition of the incurrence of actual overhead Recognition of overhead variances Closing out overhead variances, assuming they are not material Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank or enter "0". a. b. c. d.

The Wolf Company uses a standard cost accounting system and estimates production for the year to be 60,000 units. At this volume, the company's variable overhead costs are $0.50 per direct labor hour.
The company's single product has a standard cost of $30.00 per unit. Included in the $30.00 are $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours) and $4.80 for overhead. The company's variable overhead costs are $0.50 per direct labor hour.
Production information for the month of March follows:

Number of units produced 4,500 Materials purchased (13,300 yards) $61,600 Materials used in production (yards) 13,300 Variable overhead costs incurred $4,380 Fixed overhead costs incurred $20,400 Direct labor cost incurred ($6.50/hour) $57,750 Variances Materials price variance $3,080U Materials efficiency variance 880F Labor price variance 2,310U Labor efficiency variance 1,440U Variable OH price variance 240F Variable OH efficiency variance 120U Fixed OH price variance 1,400U Fixed OH volume variance 1,900U

Required:

In the chart above, the fixed overhead variances are given. Provide the calculations to prove those numbers.

Fixed OH price variance:

Fixed OH volume variance:

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AYB225 Lecture Notes - Lecture 6: Financial Statement, Pro Rata, Subledger

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