8-16 Variable manufacturing overhead, variance analysis.

Esquire Clothing is a manufacturer of designer

suits. The cost of each suit is the sum of three variable costs (direct material costs, direct manufacturing
labor costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead
costs). Variable manufacturing overhead cost is allocated to each suit on the basis of budgeted direct
manufacturing labor-hours per suit. For June 2012 each suit is budgeted to take four labor-hours.
Budgeted variable manufacturing overhead cost per labor-hour is $12. The budgeted number of suits to
be manufactured in June 2012 is 1,040.

Actual variable manufacturing costs in June 2012 were $52,164 for 1,080 suits started and
completed. There were no beginning or ending inventories of suits. Actual direct manufacturing
labor-hours for June were 4,536

1. Compute the flexible-budget variance, the spending variance, and the efficiency variance for
variable manufacturing overhead.

2. Comment on the results.

8-17 Fixed manufacturing overhead, variance analysis (continuation of 8-16). Esquire Clothing allocates
fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit.
Data pertaining to fixed manufacturing overhead costs for June 2012 are budgeted, $62,400, and actual,
$63,916.

1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.

2. Compute the production-volume variance for June 2012. What inferences can Esquire Clothing
draw from this variance?

8-18 Variable manufacturing overhead variance analysis. The French Bread Company bakes
baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct
materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on
the basis of standard direct manufacturing labor-hours. Following is some budget data for the French
Bread Company:

Direct manufacturing labor use 0.02 hours per baguette

Variable manufacturing overhead $10.00 per direct manufacturing labor-hour

The friench bread company provides the following additional data for the year ended december 31,2013

Planned (budgeted) output 3,200,000 baguettes

Actual production 2,800,000 baguettes

Direct manufacturing labor 50,400 hours

Actual variable manufacturing overhead $680,400

 1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for
how many direct manufacturing labor-hours is French Bread budgeting?)

2. Prepare a variance analysis of variable manufacturing overhead. Use Exhibit 8-4 (p. 277) for
reference.

3. Discuss the variances you have calculated and give possible explanations for them.

8-19 Fixed manufacturing overhead variance analysis (continuation of 8-18). The French Bread
Company also allocates fixed manufacturing overhead to products on the basis of standard direct
manufacturing labor-hours. For 2012, fixed manufacturing overhead was budgeted at $4.00 per direct
manufacturing labor-hour. Actual fixed manufacturing overhead incurred during the year was $272,000.

1. Prepare a variance analysis of fixed manufacturing overhead cost. Use Exhibit 8-4 (p. 277) as a
guide.

2. Is fixed overhead underallocated or overallocated? By what amount?

3. Comment on your results. Discuss the variances and explain what may be driving them.

8-20 Manufacturing overhead, variance analysis. The Solutions Corporation is a manufacturer of

centrifuges. Fixed and variable manufacturing overheads are allocated to each centrifuge using budgeted
assembly-hours. Budgeted assembly time is two hours per unit. The following table shows the budgeted
amounts and actual results related to overhead for June 2012.

Solusi perusahahaan (juni 2012) Hasil nyata Anggaran

statistik

Number of centrifuges assembled and sold 216 200

Hours of assembly time 441

Variable manufacturing overhead cost per hour of assembly time $30,00

Variable manufacturing overhead costs $12,741

Fixed manufacturing overhead costs $20,550 $19,200

1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead
variances using the columnar approach in Exhibit 8-4 (p. 277).

2. Prepare journal entries for Solutions’ June 2012 variable and fixed manufacturing overhead costs and
variances; write off these variances to cost of goods sold for the quarter ending June 30, 2012.
3. How does the planning and control of variable manufacturing overhead costs differ from the planning
and control of fixed manufacturing overhead costs?

8-21 4-variance analysis, fill in the blanks. Rozema, Inc., produces chemicals for large biotech
companies. It has the following data for manufacturing overhead costs during August 2013:

Variable Fixed

Actual costs incurred $31,000 $18,000

Costs allocated to products 33,000 14,600
Flexible budget ––––– 13,400
Actual input x budgeted rate 30,800 –––––

Use F for favorable and U for unfavorable:

Variable Fixed
(1) Spending variance $_____ $_____
(2) Efficiency variance _____ _____
(3) Production-volume variance _____ _____
(4) Flexible-budget variance _____ _____
(5) Underallocated (overallocated) manufacturing overhead _____ _____

8-22 Straightforward 4-variance overhead analysis. The Lopez Company uses standard costing in its
manufacturing plant for auto parts. The standard cost of a particular auto part, based on a denominator
level of 4,000 output units per year, included 6 machine-hours of variable manufacturing overhead at $8
per hour and 6 machine-hours of fixed manufacturing overhead at $15 per hour. Actual output produced
was 4,400 units. Variable manufacturing overhead incurred was $245,000. Fixed manufacturing
overhead incurred was $373,000. Actual machine-hours were 28,400.

1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead
variances, using the 4-variance analysis in Exhibit 8-4 (p. 277).

2. Prepare journal entries using the 4-variance analysis.

3. Describe how individual fixed manufacturing overhead items are controlled from day to day.

4. Discuss possible causes of the fixed manufacturing overhead variances.

8-23 Straightforward coverage of manufacturing overhead, standard-costing system. The Singapore

division of a Canadian telecommunications company uses standard costing for its machine-paced
production of telephone equipment. Data regarding production during June are as follows:

Variable manufacturing overhead costs incurred $618,840

Variable manufacturing overhead cost rate $8 per standard machine-hour
Fixed manufacturing overhead costs incurred $145,790 Fixed
manufacturing overhead costs budgeted $144,000
Denominator level in machine-hours 72,000
Standard machine-hour allowed per unit of output 1.2
Units of output 65,500
Actual machine-hours used 76,400
Ending work-in-process inventory 0

1. Prepare an analysis of all manufacturing overhead variances. Use the 4-variance analysis framework
illustrated in Exhibit 8-4 (p. 277).

2. Prepare journal entries for manufacturing overhead costs and their variances.

3. Describe how individual variable manufacturing overhead items are controlled from day to day.

4. Discuss possible causes of the variable manufacturing overhead variances.

8-24 Overhead variances, service sector. Meals on Wheels (MOW) operates a meal home-delivery
service. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or
fax orders to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time.
MOW’s owner, Josh Carter, obtains the following information for May 2012 overhead costs: Variable
manufacturing overhead costs incurred $618,840 Variable manufacturing overhead cost rate $8 per
standard machine-hour Fixed manufacturing overhead costs incurred $145,790 Fixed manufacturing
overhead costs budgeted $144,000 Denominator level in machine-hours 72,000 Standard machine-hour
allowed per unit of output 1.2 Units of output 65,500 Actual machine-hours used 76,400 Ending
work-in-process inventory

A B C

Meals on Wheels (May 2012) Actual Results Static Budget

Output units (number of deliveries) 8,800 10,000
Hours per delivery 0.70
Hours of delivery time 5,720
Variable overhead cost per hour of delivery time 1.50
Variable overhead costs $10,296 Fixed overhead costs $38,600 $35,000

1. Compute spending and efficiency variances for MOW’s variable overhead in May 2012.

2. Compute the spending variance and production-volume variance for MOW’s fixed overhead in
May 2012.

3. Comment on MOW’s overhead variances and suggest how Josh Carter might manage MOW’s
variable overhead differently from its fixed overhead costs.

8-25 Total overhead, 3-variance analysis. Furniture, Inc., specializes in the production of futons. It uses
standard costing and flexible budgets to account for the production of a new line of futons. For 2011,
budgeted variable overhead at a level of 3,600 standard monthly direct labor-hours was $43,200;
budgeted total overhead at 4,000 standard monthly direct labor-hours was $103,400. The standard cost
allocated to each output included a total overhead rate of 120% of standard direct labor costs. For
October, Furniture, Inc., incurred total overhead of $120,700 and direct labor costs of $128,512. The
direct labor price variance was $512 unfavorable. The direct labor flexible-budget variance was $3,512
unfavorable. The standard labor price was $25 per hour. The production-volume variance was $34,600
favorable.

1. Compute the direct labor efficiency variance and the spending and efficiency variances for
overhead. Also, compute the denominator level.

2. Describe how individual variable overhead items are controlled from day to day. Also, describe
how individual fixed overhead items are controlled.

8-26 Overhead variances, missing information. Dvent budgets 18,000 machine-hours for the production
of computer chips in August 2011. The budgeted variable overhead rate is $6 per machinehour. At the
end of August, there is a $375 favorable spending variance for variable overhead and a $1,575
unfavorable spending variance for fixed overhead. For the computer chips produced, 14,850
machine-hours are budgeted and 15,000 machine-hours are actually used. Total actual overhead costs
are $120,000.

1. Compute efficiency and flexible-budget variances for Dvent’s variable overhead in August . Will
variable overhead be over- or underallocated? By how much?

2. Compute production-volume and flexible-budget variances for Dvent’s fixed overhead in August
2011. Will fixed overhead be over- or underallocated? By how much?

8-27 Identifying favorable and unfavorable variances. Purdue, Inc., manufactures tires for large auto
companies. It uses standard costing and allocates variable and fixed manufacturing overhead based on
machine-hours. For each independent scenario given, indicate whether each of the manufacturing
variances will be favorable or unfavorable or, in case of insufficient information, indicate “CBD” (cannot
be determined).

scenario Variable Variable Fixed Fixed

Overhead Overhead Overhead Overhead
Spending Efficiency Spending Production
Variance Variance Variance Volume
Variance

Production output is 4% less than

budgeted, and actual fixed
manufacturing overhead costs are
5% more than budgeted
 Production output is 12% less than
budgeted; actual machine-hours
are 7% more than budgeted

Production output is 9% more than

budgeted

Relative to the flexible budget,

actual machine-hours are 12% less,
and actual variable manufacturing
overhead costs are 20% greater

8-28 Flexible-budget variances, review of Chapters 7 and 8. David James is a cost accountant and
business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs.
DDC uses two direct cost categories: direct materials and direct manufacturing labor. James feels that
manufacturing overhead is most closely related to material usage. Therefore, DDC allocates
manufacturing overhead to production based upon pounds of materials used.

At the beginning of 2012, DDC budgeted annual production of 400,000 doorknobs and adopted
the following standards for each doorknob:

Input Cost/Doorknob
Direct materials (brass) 0.3 lb. @ $10/lb. $ 3.00 Direct
manufacturing labor 1.2 hours @ $20/hour 24.00
Manufacturing overhead:
Variable $6/lb. x 0.3 lb. 1.80
Fixed $15/lb. x 0.3 lb. 4.50
Standard cost per doorknob $33.30

Actual results for April 2012 were as follows:

Production 35,000 doorknobs

Direct materials purchased 12,000 lb. at $11/lb.
Direct materials used 10,450 lb.
Direct manufacturing labor 38,500 hours for $808,500
Variable manufacturing overhead $64,150 Fixed
manufacturing overhead $152,000

1. For the month of April, compute the following variances, indicating whether each is favorable (F) or
unfavorable (U):
 o Direct materials price variance (based on purchases)

o Direct materials efficiency variance

o Direct manufacturing labor price variance

o Direct manufacturing labor efficiency variance

o Variable manufacturing overhead spending variance

o Variable manufacturing overhead efficiency variance g. Production-volume variance

o Fixed manufacturing overhead spending variance

2. Can James use any of the variances to help explain any of the other variances? Give examples.