Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
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Chapter 23, Problem 3AP

1.

To determine

Examine the monthly overhead budget to (a) ascertain the costs per unit for each variable overhead item and its total per unit costs, and (b) identify the total fixed costs per month.

1.

Expert Solution
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Explanation of Solution

Overhead Budget:

Overhead budget is prepared to predict the manufacturing costs, other than direct materials and direct labor costs.

(a) Ascertain the costs per unit for each variable overhead item and its total per unit costs.

ParticularsAmount in $ (A)

Total  units to  be divided (1)

(B)

Variable cost per unit                         (A÷B)
Variable costs :   
  Indirect materials 45,000 15,000 3
  Indirect labor 180,000 15,000 12
  Power 45,000 15,000 3
  Repairs and maintenance 90,000 15,000 6
  Total variable costs 360,000 15,000 24

(Table 1)

Working notes:

Calculate the factory capacity units for 75% capacity level:

Factory capacity for 75% = Total capacity of units × 75%=20,000 units ×75%=15,000 units (1)

(b) Identify the total fixed costs per month.

ParticularsAmount in $
Fixed costs (per month) 
  Depreciation—Building 24,000
  Depreciation—Machinery 80,000
  Taxes and insurance 12,000
  Supervision 79,000
  Total fixed costs 195,000

(Table 2)

2.

To determine

Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.

2.

Expert Solution
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Explanation of Solution

Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.

Company A
Flexible overhead budgets
For the  month  ended October 31
 Flexible budgetFlexible Flexible Flexible
 Variable amount per unit in $Total fixed cost  in $Budget for units sales of $13,000  in $Budget for units sales of $15,000 in $Budget for units sales of $17,000 in $
Variable overhead costs     
  Indirect materials 3  39,000 45,000 51,000
  Indirect labor 12  156,000 180,000 204,000
  Power 3  39,000 45,000 51,000
  Repairs and maintenance6  78,000 90,000 102,000
  Total variable costs 24  312,000 360,000 408,000
Fixed overhead costs     
  Depreciation—Building  24,000 24,000 24,000 24,000
  Depreciation—Mach.  80,000 80,000 80,000 80,000
  Taxes and insurance  12,000 12,000 12,000 12,000
  Supervision  79,000 79,000 79,000 79,000
  Total fixed costs  195,000 195,000 195,000 195,000
Total overhead costs   507,000 555,000 603,000

(Table 3)

3.

To determine

Compute the direct materials cost variance, including its price and quantity variances.

3.

Expert Solution
Check Mark

Explanation of Solution

Compute the direct materials cost variance:

ParticularsAmount in $
Direct material cost variances: 
Actual units at actual cost [91,000 lbs. @ $5.10] 464,100
Less: Standard units at standard cost [90,000 lbs.(2) @ $5.00] 450,000
Direct material cost variance (unfavorable )14,100

(Table 4)

Compute the direct materials price variance:

Price variance =Actual quantity ×(Actual price -Standard price)=91,000lb×($5.10-$5.00)=$9,100(unfavorable )

Compute the direct materials quantity variance:

Quantity variance =(Actual quantityStandard quantity) × Standard price=(91,000lb90,000lb(2))×$5.00 per lb.=$5,000(unfavorable )

Working Notes:

Calculate the standard quantity of materials:

 Standard quantity of materials=(Capacity of units for 75% of capacity level (1))×Direct material units=15,000 units ×6lb./unit=90,000 lb. (2)

4.

To determine

Compute the direct labor cost variance, including its rate and efficiency variances.

4.

Expert Solution
Check Mark

Explanation of Solution

Compute the direct labor cost variance:

ParticularsAmount in $
Direct labor cost variances: 
Actual units at actual cost [30,500 hrs. @ $17.25] 526,125
Less: Standard units at standard cost [30,000 hrs.(3) @ $17.00] 510,000
Direct labor cost variance (unfavorable )16,125

(Table 5)

Compute the direct labor rate variance:

Labor Rate variance =Actual Hours ×(Actual Rate -Standard Rate)=30,500 hrs×($17.25-$17.00)=$7,625 unfavorable

Compute the direct labor efficiency variance:

Labor  efficiency variance =(Actual HoursStandard Hours ) × Standard rate =(30,50030,000(3))×$17.00 per hr.=$8,500 unfavorable

Working Notes:

Calculate the standard efficiency variance:

 Standard  efficiency variance =(Capacity of units for 75% of capacity level (1))×Direct labor units=15,000 units ×2hr./unit=30,000 hours (3)

5.

To determine

Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

5.

Expert Solution
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Explanation of Solution

Company  A
Overhead variance report
For the month ended October 31
Controllable VarianceFlexible Budget (A)Actual results (B)Variances (A-B)
Variable overhead costs   
  Indirect materials $45,000 $44,250 $750 F
  Indirect labor $180,000 $177,750 $2,250  F
  Power $45,000 $43,000 $2,000  F
  Repairs and maintenance $90,000 $96,000 $6,000 U
  Total variable costs $360,000 $361,000 $1,000 U
Fixed overhead costs   
  Depreciation—Building $24,000 $24,000 0
  Depreciation—Machinery $80,000 $75,000 $5,000  F
  Taxes and insurance $12,000 $11,500 $500  F
  Supervision $79,000 $89,000 $10,000 U
  Total fixed costs $195,000 $199,500 $4,500 U
Total overhead costs $555,000 $560,500 5,500 U

(Table 6)

Note:

  • Expected production level and production level achieved is 75%
  • Favorable condition is denoted by F and Unfavorable condition is denoted by U.

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Chapter 23 Solutions

Principles of Financial Accounting.

Ch. 23 - Prob. 6DQCh. 23 - Prob. 7DQCh. 23 - Prob. 8DQCh. 23 - Prob. 9DQCh. 23 - Prob. 10DQCh. 23 - Prob. 11DQCh. 23 - Prob. 12DQCh. 23 - Prob. 13DQCh. 23 - 14. How can the manager of advertising sales at...Ch. 23 - Prob. 15DQCh. 23 - Prob. 16DQCh. 23 - Prob. 1QSCh. 23 - Prob. 2QSCh. 23 - QS 23-3 Brodrick Company expects to produce 20,000...Ch. 23 - Prob. 4QSCh. 23 - Prob. 5QSCh. 23 - Prob. 6QSCh. 23 - Prob. 7QSCh. 23 - Prob. 8QSCh. 23 - Prob. 9QSCh. 23 - Prob. 10QSCh. 23 - Prob. 11QSCh. 23 - Prob. 12QSCh. 23 - Prob. 13QSCh. 23 - Prob. 14QSCh. 23 - QS 23-14 AirPro Corp. reports the following for...Ch. 23 - Prob. 16QSCh. 23 - Prob. 17QSCh. 23 - Prob. 18QSCh. 23 - Prob. 19QSCh. 23 - Prob. 20QSCh. 23 - Prob. 21QSCh. 23 - Prob. 1ECh. 23 - Prob. 2ECh. 23 - Prob. 3ECh. 23 - Prob. 4ECh. 23 - Prob. 5ECh. 23 - Prob. 6ECh. 23 - Prob. 7ECh. 23 - Exercise 23-8 A manufactured product has the...Ch. 23 - Prob. 9ECh. 23 - Prob. 10ECh. 23 - Prob. 11ECh. 23 - Prob. 12ECh. 23 - Prob. 13ECh. 23 - Prob. 14ECh. 23 - Prob. 15ECh. 23 - Prob. 16ECh. 23 - Exercise 23-17 Sedona Company set the following...Ch. 23 - Prob. 18ECh. 23 - Prob. 19ECh. 23 - Prob. 20ECh. 23 - Prob. 21ECh. 23 - Prob. 22ECh. 23 - Prob. 23ECh. 23 - Prob. 1APCh. 23 - Prob. 2APCh. 23 - Prob. 3APCh. 23 - Prob. 4APCh. 23 - Prob. 5APCh. 23 - Prob. 6APCh. 23 - Prob. 1BPCh. 23 - Prob. 2BPCh. 23 - Prob. 3BPCh. 23 - Prob. 4BPCh. 23 - Prob. 5BPCh. 23 - Prob. 6BPCh. 23 - Prob. 23SPCh. 23 - Prob. 1BTNCh. 23 - Prob. 2BTNCh. 23 - Prob. 3BTNCh. 23 - Prob. 4BTNCh. 23 - Prob. 7BTNCh. 23 - Prob. 9BTN
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What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY