Cost Accounting (14th Edition)

ASSIGNMENT MATERIAL 293
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.
Required
Required
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 2011. 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?
Required
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
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
Actual machine-hours are
20% less than flexible-budget
machine-hours
Relative to the flexible budget,
actual machine-hours are
12% less, and actual variable
manufacturing overhead costs
are 20% greater
Variable
Overhead
Spending
Variance
Variable
Overhead
Efficiency
Variance
Fixed
Overhead
Spending
Variance
Fixed
Overhead
Production-
Volume
Variance