Folk Exam Questions - Chapter 9 1.
The Parco Company applies manufacturing overhead costs to products on the basis of direct labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit of product. For ugust! the company budgeted to wor" #$%!%%% direct labor-hours and to incur the following total manufacturing overhead costs& Total variable overhead costs Total fi)ed overhead costs '#($!%% % '*+,!2% %
-uring ugust! the company completed 2.!%%% units of product! wor"ed #**!%%% direct labor-hours! and incurred the following total manufacturing overhead costs& Total variable overhead costs Total fi)ed overhead costs '#(,!$% % '*$1!2% %
The denominator activity in the predetermined overhead rate is #$%!%%% direct laborhours. /hat is the variable overhead spending variance for ugust0 Solution: First! compute the variable overhead 12345 rate as follows& 6udgeted variable overhead costs 7 budgeted direct labor hours 8 234 rate '#($!%%% 7 #$%!%%% direct labor hours 8 '1.1% per direct labor hour Then! compute the spending variance as follows& ctual 234 incurred 9 Fle)ible 6udget for 234 3verhead at ctual hours 3r ctual 234 incurred 9 1 ctual direct labor hours ) 234 rate per direct labor hour5 '#(,!$%% 9 1#**!%%% hours ) '1.1% per hour5 8 :pending variance '#(,!$%% 9 '#+.!*%% 8 '1+!2%% ; 1see discussion below5 The variance is unfavorable because the actual overhead costs were more than the benchmar" 1that is! how much should have been spent in total on variable overhead items during the period5. 2. The Parco Company applies manufacturing overhead costs to products on the basis of direct labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit of product. For ugust! the company budgeted to wor" #$%!%%% direct labor-hours and to incur the following total manufacturing overhead costs&
Total variable overhead costs Total fi)ed overhead costs
'#($!%% % '*+,!2% %
-uring ugust! the company completed 2.!%%% units of product! wor"ed #**!%%% direct labor-hours! and incurred the following total manufacturing overhead costs& Total variable overhead costs Total fi)ed overhead costs '#(,!$% % '*$1!2% %
The denominator activity in the predetermined overhead rate is #$%!%%% direct laborhours. /hat is the variable overhead efficiency variance for ugust0 Solution: First! compute the variable overhead 12345 rate as follows& 6udgeted variable overhead costs 7 budgeted direct labor hours 8 234 rate '#($!%%% 7 #$%!%%% direct labor hours 8 '1.1% per direct labor hour Then! compute the efficiency variance as follows& Fle)ible 6udget for 234 3verhead at 4 9 Fle)ible budget for 234 at :4 3r 1 4 hours ) 234 rate5 - 1:4 hours ) 234 rate5 1#**!%%% hours ) '1.1%<-= hour5 9 112.!%%% units ) 12 -= hours<unit5 ) '1.1%<hour5 '#+.!*%% 9 1##$!%%% ) '1.1%5 8 '#+.!*%% 9 '#$(!$%% 8 '.!.%% F 1see discussion below5 >ore direct labor hours 1#**!%%%5 were wor"ed than were allowed at standard 1##$!%%%5? as such! the overhead efficiency variance is unfavorable. @ote that! in this situation! the efficiency variance would be better called a direct labor-hours efficiency variance! since it results from using more direct labor hours than e)pected 1rather than efficient use of overhead resources5. #. The Parco Company applies manufacturing overhead costs to products on the basis of direct labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit of product. For ugust! the company budgeted to wor" #$%!%%% direct labor-hours and to incur the following total manufacturing overhead costs& Total variable overhead costs Total fi)ed overhead costs '#($!%% % '*+,!2% %
-uring ugust! the company completed 2.!%%% units of product! wor"ed #**!%%% direct labor-hours! and incurred the following total manufacturing overhead costs& Total variable overhead costs Total fi)ed overhead costs '#(,!$% % '*$1!2% %
The denominator activity in the predetermined overhead rate is #$%!%%% direct laborhours. /hat is the fi)ed overhead budget variance for ugust0 Solution: ctual fi)ed overhead 9 6udgeted fi)ed overhead 8 6udget variance '*$1!2%% 9 '*+,!2%% 8 '1*!%%% F 1see discussion below5 :ince actual fi)ed overhead was less than the amount budgeted for the period! the budget variance is favorable. *. The Parco Company applies manufacturing overhead costs to products on the basis of direct labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit of product. For ugust! the company budgeted to wor" #$%!%%% direct labor-hours and to incur the following total manufacturing overhead costs& Total variable overhead costs Total fi)ed overhead costs '#($!%% % '*+,!2% %
-uring ugust! the company completed 2.!%%% units of product! wor"ed #**!%%% direct labor-hours! and incurred the following total manufacturing overhead costs& Total variable overhead costs Total fi)ed overhead costs '#(,!$% % '*$1!2% %
The denominator activity in the predetermined overhead rate is #$%!%%% direct laborhours. /hat is the fi)ed overhead volume variance for ugust0 Solution: First! compute the fi)ed overhead 1F345 rate as follows& 6udgeted fi)ed overhead costs 7 budgeted direct labor hours 8 F34 rate
'*+,!2%% 7 #$%!%%% direct labor hours 8 '1.#2 per direct labor hour 2olume variance 8 6udgeted fi)ed overhead 9 Fi)ed overhead applied 2olume variance 8 6udgeted fi)ed overhead 9 1:tandard hours allowed ) F34 rate5 2olume variance 8 '*+,!2%% 9 1112.!%%% units ) 125 ) '1.#25 2olume variance 8 '*+,!2%% 9 1##$!%%% ) '1.#25 8 '*+,!2%% - '**#!,2% 8 '#1!$.% ; :ince budgeted fi)ed overhead was more than the amount applied to wor" in process during the period! the volume variance is unfavorable.
