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Answer:: Managerial Accounting Quiz (Online)

The document is a quiz question that provides information about factory overhead variances. It includes: 1) Explanations of variable and fixed factory overhead variances, and how they are calculated. Variable overhead variances include spending and efficiency variances. Fixed overhead variances include budget and volume variances. 2) A problem asking to calculate the variances for a company given actual overhead costs and production information. 3) The response calculates the requested variances - an unfavorable variable overhead spending variance, an unfavorable variable overhead efficiency variance, a favorable fixed overhead budget variance, and a positive fixed overhead volume variance.

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Zia Uddin
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98 views

Answer:: Managerial Accounting Quiz (Online)

The document is a quiz question that provides information about factory overhead variances. It includes: 1) Explanations of variable and fixed factory overhead variances, and how they are calculated. Variable overhead variances include spending and efficiency variances. Fixed overhead variances include budget and volume variances. 2) A problem asking to calculate the variances for a company given actual overhead costs and production information. 3) The response calculates the requested variances - an unfavorable variable overhead spending variance, an unfavorable variable overhead efficiency variance, a favorable fixed overhead budget variance, and a positive fixed overhead volume variance.

Uploaded by

Zia Uddin
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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MANAGERIAL ACCOUNTING

QUIZ (ONLINE)

Question No. 1

Explain various variances relating to factory overheads.

Answer:

Factory Overhead Variance Analysis


Factory overhead is most commonly defined as "manufacturing costs that are not classifiable as
direct material or direct labor."
Factory overhead costs include indirect materials, indirect labor, and factory expenses.
In standard costing, predetermined amounts are used to facilitate better control and faster
recording of costs. Standard costing allows management to determine areas that deviate from
established standards, to be able to investigate and take corrective actions.
Factory overhead costs are better analyzed when they are segregated into variable and fixed.

Variable Factory Overhead Variance


The computation and analysis of variable factory overhead (VFOH) is pretty much similar to that
of direct labor.
The only difference is the rate applied. Also, variable overhead rates may use direct labor hours
or machine hours as its base.
VFOH variance = Total actual VFOH cost - Total standard VFOH cost

The total actual variable overhead cost and total standard variable overhead cost may be


computed as follows:

Total actual VFOH cost = Actual hours used x Actual rate per hour
Total standard VFOH cost = Standard hours for actual production x Standard VFOH rate per
hour

Note that the "hour" used refers to direct labor hour or machine hour, depending upon which is
used by the company. Capital-intensive industries tend to use machine hours. Other bases may
also be used, especially when using activity-based costing.

VFOH Spending and Efficiency Variances


Variable factory overhead may be split into: VFOH spending variance and VFOH efficiency
variance.
VFOH spending variance = (Actual rate - Standard rate) x Actual hours
VFOH efficiency variance = (Actual hours - Standard hours) x Standard rate

Fixed Factory Overhead Variance


The computation for fixed factory overhead (FFOH) variance is similar to that of variable factory
overhead. Note, however, that fixed factory overhead amounts are almost always given in total
figures (thus, it may or may not require additional computations).
FFOH variance = Total actual FFOH cost - Total standard FFOH cost

The total actual fixed overhead cost is almost always given in total amount; hence no
additional computation is needed. The total standard fixed overhead cost (or applied fixed
factory overhead) may be computed as follows:
Total standard FFOH cost = Standard hours for actual production x Standard FFOH rate per
hour

FFOH Spending and Volume Variances


Fixed factory overhead variance may be split into: FFOH spending variance (a.k.a. budget
variance) and FFOH volume variance (a.k.a. capacity variance).

FFOH spending variance = Actual FFOH - Budgeted FFOH


FFOH volume variance = Budgeted FFOH - Standard FFOH

The budgeted fixed factory overhead is also given in total amount – for a given level of
production. The total standard FFOH is computed as shown earlier and is also known as "applied
fixed factory overhead".
Question No. 2

Problem 11-35 (Straightforward Overhead Variances)

Calgary Paper Company produces paper for photocopiers. The company has developed standard
overhead rates based on a monthly capacity of 180,000 direct labor hours as follows:

Standard costs per unit (one box of paper):


Variable overhead (2 hours @ Rs. 3 per hour) Rs. 6
Fixed overhead (2 hours @ Rs. 5 per hour) Rs. 10
Total Rs. 16

During April, 90,000 units were scheduled for production: however, only 80,000 units were
actually produced. The following data relate to April.

1. Actual direct labor cost incurred was Rs. 1,567,500 for 165,000 actual hours of work.
2. Actual overhead incurred totaled Rs. 1,371,500, of which Rs. 511,500 was variable
and Rs. 860,000 was fixed.

Required: Prepare two exhibits similar to Exhibits 11-6 and 11-8 in the chapter, which show
the following variances. State whether each variance is favorable or unfavorable, where
appropriate.

1. Variable overhead spending variance.


2. Variable overhead efficiency variance.
3. Fixed overhead budget variance
4. Fixed overhead volume variance
Answer:
(Straightforward Overhead Variances)

VARIABLE OVERHEAD SPENDING AND EFFICIENCY VARIANCES

FLEXIBLE BUDGET:
VARIABLE OVERHEAD
Actual Actual Actual Standard Standar Standard Standar Standard
Hours x Rate Hours x Rate d x Rate d x Rate
(AH) (AVR) (AH) (SVR) Allowed (SVR) Allowed (SVR)
(Rs.) (Rs.) Hours (Rs.) Hours (Rs.)
(SH) (SH)
165,00 3.10 165,000 3.00 per 160,000 3.00 per 160,000 3.00 per
0 hours x per hours x hour hours x hour hours x hour
hour*

Rs. 511,500 Rs. 495,000 Rs. 480,000 Rs. 480,000


Rs. 16,500 unfavorable Rs. 15,000 unfavorable

Variable overhead Variable overhead No difference


spending variance efficiency variance

*Actual variable overhead rate (AVR)


= actual variable overhead cost = Rs. 511,500 = Rs. 3.10
actual hours Rs. 165,000

**Column (4) is not used to compute the variances. It is included to point out that the flexible budget
amount for
variable overhead, Rs. 480,000, is the amount that will be applied to work in process inventory for
product costing purposes.

FIXED OVERHEAD BUDGET AND VOLUME VARIANCES


(1) (2) (3)
ACTUAL BUDGETED FIXED OVERHEAD
FIXED FIXED APPLIED TO
OVERHEAD OVERHEAD WORK IN PROCESS
Standard Standard Fixed
Allowed x Overhead
Hours Rate (Rs.)
160,000 5.00 per
Hours x hour

Rs. 860,000 Rs. 900,000* Rs. 800,000

Rs. 40,000 Favorable Rs. 100,000 (Positive)*

Fixed overhead Fixed overhead


budget variance volume variance

*Budgeted fixed overhead = Rs. 180,000 hrs. x Rs. 5 per hours.


**Consistent with the discussion in the text, we choose not to interpret the volume variance as either
favorable or unfavorable. Some accountants would designate a positive volume variance as “unfavorable”
and a negative volume variance as “favorable”.

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