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Lecture

Chapter 8 In Class Questions_solutions_only.pdf

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Department
Accounting
Course
ACCTG424
Professor
Trish Stringer
Semester
Fall

Description
In Class #8.1 Coverage of manufacturing overhead, standard cost system Required 1 Solution Exhibit 8-1 shows the computations. Summary details are: Actual Flexible Budget Output units 49,200 49,200 Allocation base (machine-hours) 15,960 a b 14,760 Allocation base per output unit 0.324 0.30 Variable MOH $186,120 $212,544 c d Variable MOH per hour $11.662 $14.40 Fixed MOH $481,200 $468,000 Fixed MOH per hour e – $30.15 a d 49,200 × 0.30 = 14,760 $186,120 ÷ 15,960 = $11.662 b15,960 ÷ 49,200 = 0.324 e$481,200 ÷ 15,960 = $30.15 c14,760 × $14.40 = $212,544 An overview of the four-variance analysis is: Four-Variance Rate Efficiency Production Volume Analysis Variance Variance Variance Variable Manufacturing $43,704 F $17,280 U Never a variance Overhead Fixed Manufacturing $13,200 U Never a variance $25,200 U Overhead Required 2 The control of variable manufacturing overhead requires the identification of the cost drivers for such items as energy, supplies, and repairs. Control often entails monitoring nonfinancial measures that affect each cost item, one by one. Examples are kilowatt-hours used, quantities of lubricants used, and repair parts and hours used. The most convincing way to discover why overhead performance did not agree with a budget is to investigate possible causes, line item by line item. The variable overhead rate variance is favourable. This means the actual rate applied to the manufacturing costs is lower than the budgeted rate. Since variable overhead consists of several different costs, this could be for a variety of reasons, such as the utility rates being lower than estimated or the indirect materials costs per unit of denominator activity being less than estimated. The variable overhead efficiency variance is unfavourable, which implies that the estimated denominator activity was too low. Since the denominator activity is machine hours, this could be the result of inefficient use of machines, poorly scheduled production runs, or machines that need maintenance and thus are not working at the expected level of efficiency. Solution Exhibit 8-1 Flexible Budget: Budgeted Input Allocated: Allowed for Budgeted Input Actual Output Allowed for × Budgeted Rate Actual Output (3) × Budgeted Rate Actual Input (4) Actual Costs × Budgeted Rate Incurred (2) (1) Variable (15,960 × $14.40) (14,760 × $14.40) (14,760 × $14.40) Manufacturing $229,824 $212,544 $212,544 $186,120 Overhead $43,704 F $17,280 U Rate variance Efficiency variance Never a variance $26,424 F Flexible-budget variance Never a variance $26,424 F Underallocated variable overhead (Total variable overhead variance) Flexible Budget: Allocated: Budgeted Input Same Budgeted Same Budgeted Allowed for Actual Costs Actual Output Incurred × Budgeted Rate Lump Sum (4) (1) Lump Sum (as in Static Budget) (as in Static Budget) Regardless of Regardless of Output Level Output Level (2) (3) Fixed (14,760 × $30) Manufacturing $481,200 $468,000 $468,000 $442,800 Overhead $13,200 U $25,200 U Rate variance Never a variance Production-volume variance $25,200 U $13,200 U Flexible-budget variance Production-volume variance $38,400 U Underallocated fixed overhead (Total fixed overhead variance) Fixed manufacturing overhead $468,000 = = $30 per machine-hour. budgeted rate 15,600 machine - hours In Class #8.2 Overhead variance, missing information Required 1 Compute efficiency and flexible-budget variances for Dvent’s variable overhead in August 2013. Will variable overhead be overallocated or underallocated? By how much? In the columnar presentation of variable overhead variance analysis, all numbers shown in bold are calculated from the given information, in the order (a) - (e). VARIABLE MANUFACTURING OVERHEAD Flexible Budget: Budgeted Input Qty. Actual Costs Actual Input Qty. Allowed for Budgeted Incurred  Budgeted Rate Actual Output  Rate (b) (a) (c) 15,000  $6.00 14,850  $6.00 mach. hrs. per mach. hr. mach. hrs. per mach. hr. $89,625 $90,000 $89,100 $375 F $900 U (d) Rate variance Efficiency variance $525 U (e) Flexible-budget variance a. 15,000 machine-hours  $6 per machine-hour = $90,000 b. Actual VMOH = $90,000 – $375F (VOH rate variance) = $89,625 c. 14,850 machine-hours  $6 per machine-hour = $89,100 d. VOH efficiency variance = $90,000 – $89,100 = $900U e. VOH flexible budget variance = $900U – $375F = $525U Allocated variable overhead will be the same as the flexible budget variable overhead of $89,100. The actual variable overhead cost is $89,625. Therefore, variable overhead is underallocated by $525. Required 2 Compute production-volume and flexible-budget variances for Dvent’s fixed overhead in August 2013. Will fixed overhead be overallocated or underallocated? By how much? In the columnar presentation of fixed overhead variance analysis, all numbers shown in bold are calculated from the given information, in the order (a) – (e). FIXED MANUFACTURING OVERHEAD Flexible Budget: Allocated: Static Budget Lump Sum Budgeted Input Qty. Actual Costs Regardless of Output Allowed for Budgeted Incurred Level Actual Output  Rate (a) (b) 14,850  $1.60* (c) mach. hrs. mach. hr.
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