Different management levels in Bates, Inc., require varying degrees of manageria

Question

Different management levels in Bates, Inc., require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows:

   Budgeted output units                                        6,400 units

   Budgeted fixed manufacturing overhead         $25,600

   Budgeted variable manufacturing overhead            $3 per direct labor hour

   Budgeted direct manufacturing labor hours               2 hours per unit

   Fixed manufacturing costs incurred                 $27,000

   Direct manufacturing labor hours used              12,000

   Variable manufacturing costs incurred             $35,600

   Actual units manufactured                                  6,500

Required: Compute a 4-variance analysis for the plant controller.

Actual Results

Spending Variance

Actual Input Qty.

  * Budgeted Rate

Efficiency Variance

Flexible Budget

Budgeted Input Qty. for Allowed Output* Budgeted Rate

Production Variance

Allocated: Budgeted Input Qty. Allowed for Actual Output * Budgeted Rate

Units

6500

6500

6500

6400

Actual or Budgeted Input Qty

Variable Overhead

Never a Variance

Fixed Overhead

Never a Variance

Actual Results

Spending Variance

Actual Input Qty.

  * Budgeted Rate

Efficiency Variance

Flexible Budget

Budgeted Input Qty. for Allowed Output* Budgeted Rate

Production Variance

Allocated: Budgeted Input Qty. Allowed for Actual Output * Budgeted Rate

Units

6500

6500

6500

6400

Actual or Budgeted Input Qty

Variable Overhead

Never a Variance

Fixed Overhead

Never a Variance

Explanation / Answer

Answer:

4- variance analysis:-

Variable overhead spending variance :

Variable overhead spending variance = (Direct manufacturing labor hours used x Budgeted variable manufacturing overhead per direct labour hour) - Variable manufacturing cost incurred

= (12000 hours x $3 per direct labour hour) - $35600

= $36000 - $35600

= $400 Favourable

Variable overhead efficiency variance:

Variable overhead efficiency variance = (Standard hours allowed - Direct manufacturing labour hours used) x Budgeted variable manufacturing overhead per direct labour hour

= (13000 hours - 12000 hours) x $3 per direct labour hour

= 1000 hour x $3 per direct labour hour

= $3000 Favourable

Working Note:

Standard hours allowed = Actual units manufactured x Budgeted direct manufacturing labor hours per unit

= 6500 units x 2 hours per unit

= 13000 hours

Fixed overhead spending variance:

Fixed overhead spending variance = Budgeted fixed manufacturing overhead- Fixed manufacturing costs incurred

= $25600 - $27000

= -$1400 Unfavourable

Fixed overhead production- volume variance:

Fixed overehad production- volume variance = Applied fixed overhead - Budgeted fixed overehad

= $26000 - $25600

= $400 Favourable

Working note:

Applied fixed overehad = Standard fixed overhead rate per hour x Standard hours allowed

Standard fixed overhead rate per hour = Budgeted fixed overhead / (Budgeted units x Budgeted hours per unit)

= $25600 / (6400 units x 2 hours per unit)

= $25600 / 12800 hours

= $2 per hour

Applied fixed overhead = $2 per hour x 13000 hours

= $26000

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