E8-22 (similar to) Question Help * The Ramirez Company uses standard costing in
ID: 2511401 • Letter: E
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E8-22 (similar to) Question Help * The Ramirez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto part, based on a denominator level of 3,700 output units per year, included 5 machine-hours of variable manufacturing overhead at $8 per hour and 5 machine-hours of fixed manufacturing overhead at $14 per hour. Actual output produced was 4,100 units. Variable manufacturing overhead incurred was $245,000. Fixed manufacturing overhead incurred was $360,000. Actual machine-hours were 28,500. Read the requirementsExplanation / Answer
4- Variance Analysis VOH Spending(Rate) Variance (Actual Hours X Actual Variable Overhead Rate) – (Standard Variable Overhead Rate X Actual Hours) 245000-(8*28500)= 17000 UF VOH Efficiency Variance (Actual Hours Worked – Hours Allowed for Production) X Standard Variable Overhead Rate (28500-(4100*5))*8= 64000 UF FOH Spending Variance (Actual Fixed Overheads – Budgeted Fixed Overheads) 360000-(3700*5*14)= 101000 UF Production Volume Variance (Total units produced – Budgeted units) x Budgeted overhead rate (4100-3700)*14= 5600 F 2.. Variable OH 245000 Accounts Payable/Cash 245000 (Actual variable overhead costs incurred for the period. WIP Inventory(4100*5*8) 164000 Variable OH 164000 (To apply std.VOH costs to production for the period. Variable Overhead Spending Variance 17000 Variable Overhead Efficiency Variance 64000 Variable Overhead 81000 (VOH variances fro the period) Fixed Factory Overhead 360000 Accumulated depreciation, etc. 360000 (To record actual FOH incurred for the period) WIP Inventory (4100*5*14) 287000 Fixed Factory Overhead 287000 To apply standard fixed overhead costs to production for the period Fixed Overhead Spending Variance 101000 Production Volume Variance 6,000 5600 Fixed Factory Overhead 19,000 95400 (To record FOH Variance for the period 3. Fixed MOH are not controlled day-to-day.Instead they are reviewed & re-fixed during the company's budgeting process, annually or once in 6 months. 4..FOH spending variance occurs when there is a change in between a year , due to re-drafting of rent contracts & the like, resulting in some unexpected variances ,from that budgeted. Or, as in the above case, a volume variance results when there is over/under capacity utilisation , spreading the FOH to more /lesser no.of units produced,resulting in favourable/unfavourable volume variances.
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