# Solution exhibit 8 39 outlines the chapter 7 and 8

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1. Solution Exhibit 8-39 outlines the Chapter 7 and 8 framework underlying this solution. a. Pounds of direct materials purchased = \$176,000 ÷ \$1.10 = 160,000 pounds b. Pounds of excess direct materials used = \$69,000 ÷ \$11.50 = 6,000 pounds c. Variable manufacturing overhead spending variance = \$10,350 – \$18,000 = \$7,650 F d. Standard direct manufacturing labor rate = \$800,000 ÷ 40,000 hours = \$20 per hour Actual direct manufacturing labor rate = \$20 + \$0.50 = \$20.50 Actual direct manufacturing labor-hours = \$522,750 ÷ \$20.50 = 25,500 hours e. Standard variable manufacturing overhead rate = \$480,000 ÷ 40,000 = \$12 per direct manuf. labor-hour Variable manuf. overhead efficiency variance of \$18,000 ÷ \$12 = 1,500 excess hours Actual hours – Excess hours = Standard hours allowed for units produced 25,500 – 1,500 = 24,000 hours f. Budgeted fixed manufacturing overhead rate = \$640,000 ÷ 40,000 hours = \$16 per direct manuf. labor-hour Fixed manufacturing overhead allocated = \$16 × 24,000 hours = \$384,000 Production-volume variance = \$640,000 – \$384,000 = \$256,000 U 2. The control of variable manufacturing overhead requires the identification of the cost drivers for such items as energy, supplies, and repairs. Control often entails monitoring nonfinancial measures that affect each cost item, one by one. Examples are kilowatts used, quantities of lubricants used, and repair parts and hours used. The most convincing way to discover why overhead performance did not agree with a budget is to investigate possible causes, line item by line item. Individual fixed overhead items are not usually affected very much by day-to-day control. Instead, they are controlled periodically through planning decisions and budgeting procedures that may sometimes have planning horizons covering six months or a year (for example, management salaries) and sometimes covering many years (for example, long-term leases and depreciation on plant and equipment). 8-45
SOLUTION EXHIBIT 8-39 Actual Costs Incurred (Actual Input Qty. × Actual Rate) Actual Input Qty. × Budgeted Rate Purchases Usage Flexible Budget: Budgeted Input Qty. Allowed for Actual Output × Budgeted Rate Direct Materials 160,000 × \$10.40 \$1,664,000 160,000 × \$11.50 \$1,840,000 96,000 × \$11.50 \$1,104,000 3 × 30,000 × \$11.50 \$1,035,000 Direct Manuf. Labor 0.85 × 30,000 × \$20.50 \$522,750 0.85 × 30,000 × \$20 \$510,000 0.80 × 30,000 × \$20 \$480,000 Actual Costs Incurred Actual Input Qty. × Actual Rate Actual Input Qty. × Budgeted Rate Flexible Budget: Budgeted Input Qty. Allowed for Actual Output × Budgeted Rate Allocated: Budgeted Input Qty. Allowed for Actual Output × Budgeted Rate Variable MOH 0.85 × 30,000 × \$11.70 \$298,350 0.85 × 30,000 × \$12 \$306,000 0.80 × 30,000 × \$12 \$288,000 0.80 × 30,000 × \$12 \$288,000 Actual Costs Incurred (1) Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (2) Flexible Budget: Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (3) Allocated: Budgeted Input Qty. Allowed for Actual Output × Budgeted Rate (4) Fixed MOH \$597,460 \$640,000 0.80 × 50,000 × \$16 \$640,000 0.80 x 30,000 × \$16 \$384,000 8-46 \$176,000 F Price variance \$69,000 U Efficiency variance \$12,750 U Price variance \$30,000 U Efficiency variance \$42,750 U Flexible-budget variance \$7,650 F Spending variance \$18,000 U Efficiency variance Never a variance \$10,350 U Flexible-budget variance Never a variance \$256,000 U \$42,540 F Flexible-budget variance \$256,000 U Production volume variance Never a variance \$42,540 F Spending variance volume variance