Chapter 21: Q12DQ (page 967)
Samsung monitors its overhead. In an analysis of overhead cost variances, what is the controllable variance and what causes it?
The controllable overhead variance occurs due to the variations in the overhead rates.
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Identify the main purpose of a flexible budget for managers.
Presented below are terms preceded by letters a through j and a list of definitions 1 through 10. Enter the letter of the term with the definition, using the space preceding the definition.
| 1. The difference between actual and budgeted sales or cost caused by the difference between the actual price per unit and the budgeted price per unit. |
| 2. A planning budget based on a single predicted amount of sales or production volume; unsuitable for evaluations if the actual volume differs from the predicted volume. |
| 3. Preset costs for delivering a product, component, or service under normal conditions. |
| 4. A process of examining the differences between actual and budgeted sales or costs and describing them in terms of the amounts that resulted from price and quantity differences. |
| 5. The difference between the total budgeted overhead cost and the overhead cost that was allocated to products using the predetermined fixed overhead rate. |
| 6. A budget prepared based on predicted amounts of revenues and expenses corresponding to the actual level of output. |
| 7. The difference between actual and budgeted cost caused by the difference between the actual quantity and the budgeted quantity. |
| 8. The combination of both overhead spending variances (variable and fixed) and the variable overhead efficiency variance. |
| 9. A management process to focus on significant variances and give less attention to areas where performance is close to the standard. |
| 10. The difference between actual cost and standard cost, made up of a price variance and a quantity variance. |
Google monitors its fixed overhead. In an analysis of fixed overhead cost variances, what is the volume variance?
After evaluating Null Company’s manufacturing process, management decides to establish standards of 3 hours of direct labor per unit of product and \(15 per hour for the labor rate. During October, the company uses 16,250 hours of direct labor at a \)247,000 total cost to produce 5,600 units of product. In November, the company uses 22,000 hours of direct labor at a $335,500 total cost to produce 6,000 units of product.
1. Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable.
2. Interpret the October direct labor variances.
Suncoast Company set the following standard costs for one unit of its product.
Direct materials (4 .5 lbs. @ \(6 per lb.) | \)27 |
Direct labor (1 .5 hrs. @ \(12 per hr.) | 18 |
Overhead (1 .5 hrs. @ \)16 per hr.) | 24 |
Total standard cost. | \(69 |
The predetermined overhead rate (\)16.00 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.
| Overhead Budget (75% Capacity) | |
Variable overhead costs | |
Indirect materials \(22,500 | |
Indirect labor 90,000 | |
Power 22,500 | |
Repairs and maintenance 45,000 | |
Total variable overhead costs | \)180,000 |
Fixed overhead costs | |
Depreciation—Building 24,000 | |
Depreciation—Machinery 72,000 | |
Taxes and insurance 18,000 | |
Supervision 66,000 | |
Total fixed overhead costs. | 180,000 |
Total overhead costs | \(360,000 |
The company incurred the following actual costs when it operated at 75% of capacity in December.
Direct materials (69,000 lbs. @ \)6 .10 per lb.) | \( 420,900 |
Direct labor (22,800 hrs. @ \)12 .30 per hr.) | |
Overhead costs | |
Indirect materials \(21,600 | |
Indirect labor 82,260 | |
Power 23,100 | |
Repairs and maintenance 46,800 | |
Depreciation—Building 24,000 | |
Depreciation—Machinery 75,000 | |
Taxes and insurance 16,500 | |
Supervision 66,000 | 355,260 |
Total costs | \)1,056,600 |
Required
1. Examine the monthly overhead budget to
(a) determine the costs per unit for each variable overhead item and its total per unit costs and (b) identify the total fixed costs per month.
2. Prepare flexible overhead budgets (as in Exhibit 21.12) for December showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.
3. Compute the direct materials cost variance, including its price and quantity variances.
4. Compute the direct labor cost variance, including its rate and efficiency variances.
5.Prepare a detailed overhead variance report (as in Exhibit 21.16) that shows the variances for individual items of overhead.
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