committed well before they are incurred. In contrast, for variable overhead, a mix of
longrun planning and daily monitoring of the use of individual items is required to manage costs
efficiently.
MOW plans to undertake only valueadded variableoverhead activities (a longrun
focus) and then manage the cost drivers of those activities in the most efficient way (a shortrun
focus).
824 Excel Application
Flexible Budgets, Variances, and Management Control
Meals on Wheels
Original Data
Actual
Flexible
Results
Budget Amounts
Output Units (# Deliveries)
7,460
8,000
Hours of Delivery Time
5,595
6,400
Hours per Delivery
0.75
0.80
Variable Overhead Costs
$14,174
$12,800
Variable Overhead Costs per
Hour of Delivery Time
$2.53
$2.00
Fixed Overhead Costs
$27,600
$24,000
Variance Calculations
Actual Costs Incurred (1)
$14,174
Actual Input
x Budgeted Rate (2)
$11,190
Budgeted Input Allowed
for Actual Output
x Budgeted Rate (3)
$11,936
Spending Variance (1)(2)
$2,984 U
Efficiency Variance (2)(3)
$746 F
Fixed Overhead Spending
Variance
$3,600 U
819
824
(Cont.d’)
Flexible Budgets, Variances, and Management Control
Meals on Wheels
Flexible
Cost Item/Allocation Base
Actual Results
Budget
Amount
Variable Overhead Costs
$14,174
$12,800
Fixed Overhead Costs
$27,600
$24,000
Time per Delivery (hours)
0.75
0.80
Number of Home Deliveries
7,460
8,000
Hours of Delivery time
5,595
6,400
Variable Overhead Cost per
Delivery
$1.90
$1.60
Variable Overhead Cost per
hour of Delivery Time
$2.53
$2.00
Problem 1
Budgeted Input Allowed
Actual Costs
Actual Input
for Actual Output
Incurred (1)
x Budgeted
Rate (2)
x Budgeted Rate (3)
$14,174
$11,190
$11,936
Spending Variance
$2,984 U
Efficiency Variance
$746 F
Problem 2
Fixed Overhead Spending
Variance
$3,600
U
820
825
(35

50 min.)
Total overhead, 3variance analysis.
1.
This problem has two major purposes:
(a) to give experience with data allocated on a total
overhead basis instead of on separate variable and fixed bases and (b) to reinforce distinctions
between actual hours of input, budgeted (standard) hours allowed for actual output, and
denominator level.
An analysis of direct manufacturing labor will provide the data for actual hours of input
and standard hours allowed.
One approach is to plug the known figures (designated by asterisks)
into the analytical framework and solve for the unknowns.
The direct manufacturing labor
efficiency variance can be computed by subtracting $9,640 from $14,440.
The complete picture
is:
Actual Costs
Incurred
Actual Input
× Budgeted Rate
Flexible Budget:
Budgeted Input
Allowed for
Actual Output
× Budgeted Rate
(12,050 hrs. × $16.80)
$202,440*
(12,050 hrs. × $16.00*)
$192,800
(11,750 hrs. × $16.00*)
$188,000
* Given
Direct Labor calculations
Actual input × Budgeted rate = Actual costs – Price variance
= $202,440 – $9,640 = $192,800
Actual input = $192,800 ÷ Budgeted rate = $192,800 ÷ $16 = 12,050 hours
Budgeted input × Budgeted rate = $192,800 – Efficiency variance
= $192,800 – $4,800 = $188,000
Budgeted input = $188,000 ÷ Budgeted rate = $188,000 ÷ 16 = 11,750 hours
Repair Overhead
Variable overhead rate
= $64,000* ÷ 8,000* hrs. = $8.00 per standard laborhour
= $197,600* – 10,000*($8.00) = $117,600
If total overhead is allocated at 120% of direct laborcost, the single overhead rate must
be 120% of $16.00, or $19.20 per hour.
Therefore, the fixed overhead component of the rate
must be $19.20 – $8.00, or $11.20 per direct laborhour.
You've reached the end of your free preview.
Want to read all 54 pages?
 Spring '11
 Cost Accounting, Variance, Variable Manufacturing