Financial and Managerial Accounting: Information for Decisions
Financial and Managerial Accounting: Information for Decisions
6th Edition
ISBN: 9780078025761
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 21, Problem 3PSB

1.

(a).

To determine

The cost per unit of each variable overhead item and its total per unit costs.

1.

(a).

Expert Solution
Check Mark

Explanation of Solution

Calculation of the variable cost per unit:

Variable overhead cost item Total cost ($) Expected production volume Cost per unit ($)
Indirect materials 22,500 15,000 1.50
Indirect labor 90,000 15,000 6.00
Power 22,500 15,000 1.50
Repairs and maintenance 45,000 15,000 3.00
Total variable overhead cost per unit 12.00
Table(1)

Thus, the total variable overhead cost per unit is $12.

(b).

To determine

The total fixed costs per month.

(b).

Expert Solution
Check Mark

Explanation of Solution

Calculation of the total fixed costs per month.

Fixed overhead cost item Amount ($)
Depreciation building 24,000
Depreciation machinery 72,000
Taxes and insurance 18,000
Supervision 66,000
Total 180,000
Table(2)

Hence, the total fixed cost per month is $180,000.

2.

To determine

The flexible budget.

2.

Expert Solution
Check Mark

Explanation of Solution

The flexible budget for the Company S.

S Company
Flexible overhead budgets
For month ended December 31
Particulars
Variable cost per unit ($) Total fixed cost ($) Budget for unit sales of 13,000 Budget for unit sales of 15,000 Budget for unit sales of 17,000
Variable overhead costs
Indirect materials 1.50 19,500 22,500 51,000
Indirect labor 6.00 78,000 90,000 204,000
Power 1.50 19,500 22,500 51,000
Repairs and maintenance 3.00 39,000 45,000 102,000
Total variable cost 12.00 156,000 180,000 204,000
Fixed overhead costs
Depreciation-building 24,000 24,000 24,000 24,000
Depreciation-machinery 72,000 72,000 72,000 72,000
Taxes and insurance 18,000 18,000 18,000 18,000
Supervision 66,000 66,000 66,000 66,000
Total fixed cost 180,000 180,000 180,000 180,000
Total overheads 336,000 360,000 384,000
Table(3)

Thus, the flexible budget estimates the total variable, fixed and overhead costs as mentioned above.

3.

To determine

The direct materials cost variance, price variance and quantity variance.

3.

Expert Solution
Check Mark

Explanation of Solution

Given,
The actual material used is 69,000 lbs.
The standard quantity of materials for actual production is 67,500 lbs.
The actual price is $6.10 per lb.
The standard price is $6.00 per lb.

Calculation of direct material cost variance,

Particulars Amount ($)
Actual units at actual cost ( 69,000×$6.10 ) 420,900
Standard units at standard cost ( 67,500×$6.00 ) 405,000
Direct material cost variance 15,900 (unfavorable)
Table(4)

The direct material cost variance is $15,900 (unfavorable).

Calculation of direct material price variance:

The formula to calculate the direct material price variance is,

   Directmaterialpricevariance=Actualquantity ×( ActualpriceStandardprice )

Substitute 69,000 lb. for the actual quantity, $6.10 for the actual price and $6 for the standard price in the above formula.

   Directmaterialpricevariance=69,000lb×( $6.10$6.00 )perlb =69,000lb×( $0.10 )perlb =$6,900U

The direct material price variance is $6,900 (unfavorable).

Calculation of direct material quantity variance:

The formula to calculate the direct material quantity variance is,

   Directmaterialquantityvariance=( ActualquantityStandardquantity ) ×Standardprice

Substitute 69,000 lb for the actual quantity, 67,500 lb for standard quantity and $6.00 for standard price in the above formula.

   Directmaterialquantityvariance=( 69,00067,500 )lb×$6perlb =1,500lb×$6.00perlb =$9,000U

The direct material quantity variance is $9,000 (unfavorable).

Hence, the direct material cost variance, price variance and quantity variance is $15,900 (unfavorable), $6,900 (unfavorable) and $9,000 (unfavorable).

4.

To determine

The direct labor cost, rate and efficiency variances.

4.

Expert Solution
Check Mark

Explanation of Solution

Given,

The actual hours used is 22,800 hours.
The standard hours for actual production are 22,500 hours.
The actual rate is $12.30 per hour.
The standard rate is $12.00 per hour.

Calculation of direct labor cost variance:

Particulars Amount ($)
Actual hours at actual cost ( 22,800hours×$12.30 ) 280,440
Standard hours at standard cost ( 22,500×$12.00 ) 270,000
Direct labor cost variance 10,440 (unfavorable)
Table(5)

The direct labor cost variance is $10,440 (unfavorable).

Calculation of direct labor rate variance:

The formula to calculate the direct labor rate variance is,

   Directlaborratevariance=Actualhours ×( ActualrateStandardrate )

Substitute 22,800 hours. for the actual hours, $12.30 for the actual rate and $12 for the standard rate in the above formula.

   Directlaborratevariance=22,800hours×( $12.30$12.00 )perlb =22,800hours×( $0.30 )perlb =$6,840U

The direct labor rate variance is $6,840 (unfavorable).

Calculation of direct labor efficiency variance:

The formula to calculate the direct labor efficiency variance is,

   Directlaborefficiencyvariance=( ActualhoursStandardhours ) ×Standardrate

Substitute 22,800 for the actual hours, 22,500 for standard hours and $12.00 for standard rate in the above formula.

   Directlaborefficiencyvariance=( 22,80022,500 )hours×$12perhour =300hours×$12.00perhour =$3,600U

The direct labor efficiency variance is $3,600 (unfavorable).

Hence, the direct labor cost variance, rate variance and efficiency variance is $10,440 (unfavorable), $6,840 (unfavorable) and $3,600 (unfavorable).

5.

To determine

To prepare: The detailed overhead variance report.

5.

Expert Solution
Check Mark

Explanation of Solution

The detailed overhead variance report showing the variances for individual items of overhead.

S Company
Overhead variance report
For month ended October 31
Volume variance
Expected production level 75% of capacity
Production level achieved 75% of capacity
Volume variance None
Controllable variance Flexible Actual Variances Favorable or unfavorable
Variable overhead costs
Indirect materials 22,500 21,600 900 Favorable
Indirect labor 90,000 82,260 7,740 Favorable
Power 22,500 23,100 600 Unfavorable
Repairs and maintenance 45,000 46,800 1,800 Unfavorable
Total variable costs 180,000 173,760 6,240 Favorable
Fixed overhead costs
Depreciation-building 24,000 24,000 0
Depreciation-machinery 72,000 75,000 3,000 Unfavorable
Taxes and insurance 18,000 16,500 1,500 Favorable
Supervision 66,000 66,000 0
Total fixed costs 180,000 181,500 1,500 Unfavorable
Total overhead costs 360,000 355,260 4,740 Favorable
Table(6)

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Chapter 21 Solutions

Financial and Managerial Accounting: Information for Decisions

Ch. 21 - Prob. 6DQCh. 21 - Prob. 7DQCh. 21 - Prob. 8DQCh. 21 - Prob. 9DQCh. 21 - Prob. 10DQCh. 21 - Prob. 11DQCh. 21 - Prob. 12DQCh. 21 - Prob. 13DQCh. 21 - Prob. 14DQCh. 21 - Prob. 15DQCh. 21 - Prob. 16DQCh. 21 - Prob. 1QSCh. 21 - Prob. 2QSCh. 21 - Prob. 3QSCh. 21 - Prob. 4QSCh. 21 - Prob. 5QSCh. 21 - Prob. 6QSCh. 21 - Prob. 7QSCh. 21 - Prob. 8QSCh. 21 - Prob. 9QSCh. 21 - Materials cost variances P2 Juan Company’s output...Ch. 21 - Prob. 11QSCh. 21 - Prob. 12QSCh. 21 - Prob. 13QSCh. 21 - Prob. 14QSCh. 21 - Prob. 15QSCh. 21 - Prob. 16QSCh. 21 - A Preparing overhead entries P5 Refer to the...Ch. 21 - A Total variable overhead cost variance P4 Mosaic...Ch. 21 - A Overhead spending and efficiency variances P4...Ch. 21 - Prob. 20QSCh. 21 - Prob. 21QSCh. 21 - Prob. 1ECh. 21 - Prob. 2ECh. 21 - Prob. 3ECh. 21 - Prob. 4ECh. 21 - Prob. 5ECh. 21 - Prob. 6ECh. 21 - Prob. 7ECh. 21 - Exercise 21-8 Standard unit cost; total variance...Ch. 21 - Prob. 9ECh. 21 - Prob. 10ECh. 21 - Prob. 11ECh. 21 - Prob. 12ECh. 21 - Prob. 13ECh. 21 - Exercise 21-14A Materials variances recorded and...Ch. 21 - Prob. 15ECh. 21 - Prob. 16ECh. 21 - Prob. 17ECh. 21 - Prob. 18ECh. 21 - Exercise 21-19 Computation of total overhead rate...Ch. 21 - Exercise 21-20 Computation of volume and...Ch. 21 - Exercise 21-21 Overhead controllable and volume...Ch. 21 - Prob. 22ECh. 21 - Prob. 23ECh. 21 - Prob. 1PSACh. 21 - Prob. 2PSACh. 21 - Prob. 3PSACh. 21 - Prob. 4PSACh. 21 - Prob. 5PSACh. 21 - Problem 21-6AA Materials, labor, and overhead...Ch. 21 - Prob. 1PSBCh. 21 - Prob. 2PSBCh. 21 - Prob. 3PSBCh. 21 - Prob. 4PSBCh. 21 - Prob. 5PSBCh. 21 - Problem 21-6BA Materials, labor, and overhead...Ch. 21 - Prob. 21SPCh. 21 - Prob. 1BTNCh. 21 - Prob. 2BTNCh. 21 - Prob. 3BTNCh. 21 - The reason we use the words favorable when...Ch. 21 - Prob. 5BTNCh. 21 - Prob. 6BTNCh. 21 - Prob. 7BTNCh. 21 - Prob. 8BTNCh. 21 - Prob. 9BTN
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