Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 8, Problem 5PSA

1.

To determine

The variable overhead spending and efficiency variance.

1.

Expert Solution
Check Mark

Explanation of Solution

Given,
The actual hours are 265,000.
The variable overhead costs are $2,200,000.
The standard direct labor hours at 80% capacity is 240,000.
The variable overhead costs at 80% capacity are $1,920,000.

Compute variable overhead spending variance.

The formula to calculate the variable overhead spending variance is,

     Spendingvariance=[ ( Actualhours×Actualvariablerate ) ( Actualhours×Standardvariablerate ) ]

Substitute 265,000 for actual hours, $8.30 for actual variable rate and $8 for standard variable rate (refer working note).

     Spendingvariance=( 265,000×$8.30 )( 265,000×$8 ) =$2,199,500$2,120,000 =$79,500U

The variable overhead spending variance is $79,500 (unfavorable).

Calculation of variable overhead efficiency variance:

The formula to calculate the variable overhead efficiency variance is,

     Efficiencyvariance=[ ( Actualhours×Standardvariablerate ) ( Standardhours×Standardvariablerate ) ]

Substitute 265,000 for the actual hours, 240,000 for standard hours and $8 for the standard variable rate.

     Efficiencyvariance=( 265,000×$8 )( 240,000×$8 ) =$2,120,000$1,920,000 =$200,000U

The variable overhead efficiency variance is $200,000 (unfavorable).

Working note:

Calculation of the actual variable rate,

     Actualvariablerate= Actualvariableoverheadcosts Actualhours = $2,200,000 265,000 =$8.30

The actual variable rate is $8.30.

Calculation of the standard variable rate,

     Standardvariablerate= Standardvariableoverheadcosts Standardhours = $1,920,000 240,000 =$8.00

The standard variable rate is $8.00.
Hence, the variable overhead spending variance and variable overhead efficiency variance is $79,500 (unfavorable), and $200,000 (favorable).

2.

To determine

The fixed overhead spending and volume variances.

2.

Expert Solution
Check Mark

Explanation of Solution

Given,
The actual overhead is $2,350,000.
The budgeted overhead is $2,400,000.
The standard direct labor hours at 80% capacity is 240,000.
The actual hours are 265,000 hours.

Compute the fixed overhead spending variance.

The formula to calculate the fixed overhead spending variance is,

     Spendingvariance=ActualoverheadBudgetedoverhead

Substitute $2,350,000 for actual overhead and $2,400,000 for budgeted overhead.

     Spendingvariance=$2,350,000$2,400,000 =$50,000F

The fixed overhead spending variance is $50,000 (favorable).

Compute fixed overhead volume variance.

The formula to calculate the fixed overhead volume variance is,

     Fixedoverheadvolumevariance=BudgetedoverheadAppliedoverhead

Substitute $2,400,000 for the budgeted overhead and $2,650,000 for the applied overhead (refer working note).

     Fixedoverheadvolumevariance=$2,400,000$2,650,000 =$250,000F

The fixed overhead volume variance is $250,000 (favorable).

Working note:

Calculation of the applied overhead,

     Appliedoverhead= Budgetedoverhead Standarddirectlaborhours ×Actualhours = $2,400,000 240,000hours ×265,000hours =$2,650,000

The applied overhead is $2,650,000.

Hence, the fixed overhead spending variance and fixed overhead volume variance is $50,000 (favorable) and $250,000 (favorable).

3.

To determine

The total overhead controllable variance.

3.

Expert Solution
Check Mark

Explanation of Solution

Given,
The variable overhead spending variance is $79,500 (unfavorable).
The variable overhead efficiency variance is $200,000 (unfavorable).
The fixed overhead spending variance is $50,000 (favorable).

Compute the overhead controllable variance.

The formula to calculate the overhead controllable variance is,

     Controllablevariance=( Variableoverheadspendingvariance +Variableoverheadefficiencyvariance +Fixedoverheadspendingvariance )

Substitute $79,500 for variable overhead spending variance, $200,000 for variable overhead efficiency variance and $50,000 for fixed overhead spending variance.

     Controllablevariance=( $79,500U+$200,000U+$50,000F ) =$229,500U

The overhead controllable variance is $229,500 (unfavorable).

Thus, the total overhead controllable variance is $229,500 (unfavorable).

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Chapter 8 Solutions

Managerial Accounting

Ch. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQCh. 8 - Prob. 11DQCh. 8 - Prob. 12DQCh. 8 - Prob. 13DQCh. 8 - Prob. 14DQCh. 8 - Prob. 15DQCh. 8 - Prob. 16DQCh. 8 - Prob. 17DQCh. 8 - Prob. 18DQCh. 8 - Prob. 1QSCh. 8 - Prob. 2QSCh. 8 - Prob. 3QSCh. 8 - Prob. 4QSCh. 8 - Prob. 5QSCh. 8 - Prob. 6QSCh. 8 - Prob. 7QSCh. 8 - Prob. 8QSCh. 8 - Prob. 9QSCh. 8 - Materials cost variances P2 Juan Company’s output...Ch. 8 - Prob. 11QSCh. 8 - Prob. 12QSCh. 8 - Prob. 13QSCh. 8 - Prob. 14QSCh. 8 - Prob. 15QSCh. 8 - Prob. 16QSCh. 8 - A Preparing overhead entries P5 Refer to the...Ch. 8 - A Total variable overhead cost variance P4 Mosaic...Ch. 8 - A Overhead spending and efficiency variances P4...Ch. 8 - Computing sales price and volume variances A1...Ch. 8 - Sales variances A1 In a recent year, BMW sold...Ch. 8 - Prob. 22QSCh. 8 - Prob. 23QSCh. 8 - Prob. 24QSCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Prob. 4ECh. 8 - Prob. 5ECh. 8 - Prob. 6ECh. 8 - Prob. 7ECh. 8 - Exercise 21-8 Standard unit cost; total variance...Ch. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - Prob. 12ECh. 8 - Prob. 13ECh. 8 - Exercise 21-14A Materials variances recorded and...Ch. 8 - Prob. 15ECh. 8 - Prob. 16ECh. 8 - Prob. 17ECh. 8 - Prob. 18ECh. 8 - Exercise 21-19 Computation of total overhead rate...Ch. 8 - Exercise 21-20 Computation of volume and...Ch. 8 - Exercise 21-21 Overhead controllable and volume...Ch. 8 - Prob. 22ECh. 8 - Exercise 21-23 Computing and interpreting sales...Ch. 8 - Prob. 1PSACh. 8 - Prob. 2PSACh. 8 - Prob. 3PSACh. 8 - Prob. 4PSACh. 8 - Prob. 5PSACh. 8 - Problem 21-6AA Materials, labor, and overhead...Ch. 8 - Prob. 1PSBCh. 8 - Prob. 2PSBCh. 8 - Prob. 3PSBCh. 8 - Prob. 4PSBCh. 8 - Prob. 5PSBCh. 8 - Problem 21-6BA Materials, labor, and overhead...Ch. 8 - Prob. 8SPCh. 8 - Flexible budgets and standard costs emphasize the...Ch. 8 - Prob. 2AACh. 8 - Prob. 3AACh. 8 - Prob. 1BTNCh. 8 - The reason we use the words favorable when...Ch. 8 - Prob. 3BTNCh. 8 - Prob. 4BTNCh. 8 - Prob. 5BTNCh. 8 - Prob. 6BTN
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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