Flick Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20,000 for variable overhead and $30,000 for fixed overhead.

145. Flick Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20,000 for variable overhead and $30,000 for fixed overhead. The predetermined overhead rate, including both fixed and variable components, is $2.50 per direct labor-hour. The standards call for two direct labor-hours per unit of output produced. Last year, the company produced 11,500 units of product and worked 22,000 direct labor-hours. Actual costs were $22,500 for variable overhead and $31,000 for fixed overhead.

           

            Required:

           

a.      What is the denominator level of activity?

b.     What were the standard hours allowed for the output last year?

c.      What was the variable overhead spending variance?

d.     What was the variable overhead efficiency variance?

e.      What was the fixed overhead budget variance?

f.      What was the fixed overhead volume variance?

            Ans: 

           

           

a.	Total overhead at the denominator level of activity...	$50,000
	÷ Predetermined overhead rate....................................	$2.50/DLH
	= Denominator level of activity..................................	20,000 DLHs

b.	Actual output..............................	11,500 units
	× Standard DLH per unit............	2 DLH per unit
	= Standard DLHs allowed..........	23,000 DLHs

c. Computation of variable overhead spending variance:

Spending variance = (AH × AR) − (AH × SR)

= ($22,500) − (22,000 × $1.00*) = $500 U   

*$20,000 ÷ 20,000 DLHs = $1.00

d. Computation of variable overhead efficiency variance:

Spending variance = (AH × SR) − (SH × SR)

= (22,000 × $1.00) − (23,000* × $1.00) = $1,000 F

* 2 DLHs per unit × 11,500 units = 23,000 DLHs

e. Computation of the fixed overhead budget variance:

Budget variance = Actual fixed overhead − Budgeted Fixed overhead

= $31,000 − $30,000 = $1,000 U

f. Computation of the fixed overhead volume variance:

Volume variance = Fixed portion of predetermined overhead rate ×

(Denominator hours − Standard hours allowed)

= $1.50* (20,000 − 23,000) = $4,500 F

*$30,000 ÷ 20,000 DLH = $1.50 per DLH

            LO:  3; 4; 5; 6    

    146. Wattis Manufacturing has established the following master flexible budget:

           

	Sales in units.....................................	100,000	150,000	200,000
	Sales..................................................	$1,500,000	$2,250,000	$3,000,000
	Variable expenses:
	Raw materials................................	220,000	330,000	440,000
	Direct labor....................................	240,000	360,000	480,000
	Variable manufacturing overhead.	180,000	270,000	360,000
	Variable selling and administrative	100,000	150,000	200,000
	Total variable expenses....................	740,000	1,110,000	1,480,000
	Contribution margin.........................	760,000	1,140,000	1,520,000
	Fixed expenses:
	Fixed manufacturing overhead......	337,500	337,500	337,500
	Fixed selling and administrative...	250,000	250,000	250,000
	Total fixed expenses.........................	587,500	587,500	587,500
	Net operating income.......................	$  172,500	$  552,500	$  932,500

            Manufacturing overhead is applied on the basis of standard machine-hours. At standard, each unit of product requires one machine-hour to complete.

           

            Required:

           

a.      The denominator activity level is 150,000 units. What are the predetermined variable and fixed manufacturing overhead rates?

b.     Actual data for the year were as follows:

           

	Actual variable manufacturing overhead cost................	$211,680
	Actual fixed manufacturing overhead cost.....................	$343,000
	Actual machine-hours incurred......................................	126,000
	Units produced and sold.................................................	120,000

           

            Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for the year.

            Ans: 

a.      Predetermined variable overhead rate = $270,000 ÷ 150,000 machine-hours

= $1.80 per machine-hour

Predetermined fixed overhead rate = $337,500 ÷ 150,000 machine-hours

= $2.25 per machine-hour

b.     Variable overhead variances:

Spending variance = AH (AR − SR) = 126,000 ($1.68* − $1.80) = $15,120 F

*AR = $211,680 ÷ 126,000 actual machine-hours = $1.68

Efficiency variance = SR (AH − SH) = $1.80 (126,000 − 120,000*) = $10,800 U

*SH = 120,000 units × 1 hour per unit = 120,000 hours

Fixed overhead variances:

Budget variance = Actual fixed overhead − Budgeted fixed overhead

= $343,000 − $337,500 = $5,500 U

Volume variance = Fixed rate (Denominator hours − Standard hours)

= $2.25 (150,000 − 120,000*) = $67,500 U

*Standard hours = 120,000 units × 1 hour per unit = 120,000 hours

            LO:  3; 4; 5; 6    

    147. Sorrick Corporation, which makes sophisticated industrial valves, has provided the following data from its standard costing system and for its actual operations in March:

           

	Budgeted production....................................	5,300	valves
	Actual production.........................................	5,400	valves
	Standard machine-hours per valve...............	7.5	machine-hours
	Budgeted machine-hours (7.5 × 5,300)........	39,750	machine-hours
	Standard machine-hours allowed for the actual output (7.5 × 5,400)........................	40,500	machine-hours
	Actual machine-hours...................................	41,160	machine-hours

	Budgeted variable overhead cost per machine-hour:
	Indirect labor............	$9.30	per machine-hour
	Power........................	$2.40	per machine-hour
	Actual total variable overhead costs:
	Indirect labor............	$363,400
	Power........................	$94,821

            Required:

           

            Compute the variable overhead spending variances for indirect labor and for power for March. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work!

            Ans: 

	Cost Formula (per machine-hour)	Actual Costs Incurred 41,160 Machine-Hours	Flexible Budget Based on 41,160 Machine-Hours	Spending Variance
Indirect labor.	$9.30	$363,400	$382,788	$19,388 F
Power.............	$2.40	$94,821	$98,784	$3,963 F

           

    148. The following data for November have been provided by Hunn Corporation, a producer of precision drills for oil exploration:

           

	Budgeted production.....................	3,700	drills
	Standard machine-hours per drill..	9.0	machine-hours
	Standard indirect labor..................	$8.80	per machine-hour
	Standard power..............................	$2.40	per machine-hour
	Actual production..........................	3,900	drills
	Actual machine-hours....................	35,350	machine-hours
	Actual indirect labor......................	$313,923
	Actual power.................................	$83,310

           

            Required:

           

            Compute the variable overhead spending variances for indirect labor and for power for November. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work!

            Ans: 

	Cost Formula (per machine-hour)	Actual Costs Incurred 35,350 Machine-Hours	Flexible Budget Based on 35,350 Machine-Hours	Spending Variance
Indirect labor.	$8.80	$313,923	$311,080	$2,843 U
Power.............	$2.40	$83,310	$84,840	$1,530 F

           

    149. Hammond Corporation has provided the following data for October:

           

	Budgeted production.................................	2,100	units
	Actual production......................................	2,400	units
	Standard machine-hours per unit...............	6.0	machine-hours
	Budgeted machine-hours (6.0 × 2,100).....	12,600	machine-hours
	Standard machine-hours allowed for the actual output (6.0 × 2,400).....................	14,400	machine-hours
	Actual machine-hours................................	14,220	machine-hours

	Budgeted variable overhead cost per machine-hour:
	Lubricants...........	$1.00	per machine-hour
	Supplies..............	$1.60	per machine-hour
	Actual total variable overhead costs:
	Lubricants...........	$13,974
	Supplies..............	$23,558

            Required:

           

            Compute the variable overhead spending variances for lubricants and for supplies for October. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work!

            Ans: 

	Cost Formula (per machine-hour)	Actual Costs Incurred 14,220 Machine-Hours	Flexible Budget Based on 14,220 Machine-Hours	Spending Variance
Lubricants......	$1.00	$13,974	$14,220	$246 F
Supplies.........	$1.60	$23,558	$22,752	$806 U