In contrast for variable overhead a mix of long run planning and daily

In contrast for variable overhead a mix of long run

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committed well before they are incurred. In contrast, for variable overhead, a mix of long-run planning and daily monitoring of the use of individual items is required to manage costs efficiently. MOW plans to undertake only value-added variable-overhead activities (a long-run focus) and then manage the cost drivers of those activities in the most efficient way (a short-run focus). 8-24 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 8-19
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8-24 (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 8-20
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8-25 (35 - 50 min.) Total overhead, 3-variance 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 labor-hour = $197,600* – 10,000*($8.00) = $117,600 If total overhead is allocated at 120% of direct labor-cost, 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 labor-hour.
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