Flexible budget output units auto parts 4400 4400

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  • ACC 350
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Flexible Budget Output units (auto parts) 4,400 4,400 Allocation base (machine-hours) 28,400 26,400 a Allocation base per output unit 6.45 b 6.00 Variable MOH $245,000 $211,200 c Variable MOH per hour $8.63 d $8.00 Fixed MOH $373,000 $360,000 e Fixed MOH per hour $13.13 f a 4,400 units × 6.00 machine-hours/unit = 26,400 machine-hours b 28,400 ÷ 4,400 = 6.45 machine-hours per unit c 4,400 units × 6.00 machine-hours per unit × $8.00 per machine-hour = $211,200 d $245,000 ÷ 28,400 = $8.63 e 4,000 units × 6.00 machine-hours per unit × $15 per machine-hour = $360,000 f $373,000 ÷ 28,400 = $13.13 2. Variable Manufacturing Overhead Control 245,000 Accounts Payable Control and other accounts 245,000 8-13
Work-in-Process Control 211,200 Variable Manufacturing Overhead Allocated 211,200 Variable Manufacturing Overhead Allocated 211,200 Variable Manufacturing Overhead Spending Variance 17,800 Variable Manufacturing Overhead Efficiency Variance 16,000 Variable Manufacturing Overhead Control 245,000 Fixed Manufacturing Overhead Control 373,000 Wages Payable Control, Accumulated Depreciation Control, etc. 373,000 Work-in-Process Control 396,000 Fixed Manufacturing Overhead Allocated 396,000 Fixed Manufacturing Overhead Allocated 396,000 Fixed Manufacturing Overhead Spending Variance 13,000 Fixed Manufacturing Overhead Production-Volume Variance 36,000 Fixed Manufacturing Overhead Control 373,000 3. Individual fixed manufacturing 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 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). 4. The fixed overhead spending variance is caused by the actual realization of fixed costs differing from the budgeted amounts. Some fixed costs are known because they are contractually specified, such as rent or insurance, although if the rental or insurance contract expires during the year, the fixed amount can change. Other fixed costs are estimated, such as the cost of managerial salaries which may depend on bonuses and other payments not known at the beginning of the period. In this example, the spending variance is unfavorable, so actual FOH is greater than the budgeted amount of FOH. The fixed overhead production volume variance is caused by production being over or under expected capacity. You may be under capacity when demand drops from expected levels, or if there are problems with production. Over capacity is usually driven by favorable demand shocks or a desire to increase inventories. The fact that there is a favorable volume variance indicates that production exceeded the expected level of output (4,400 units actual relative to a denominator level of 4,000 output units). 8-14
SOLUTION EXHIBIT 8-22 Actual Costs Incurred (1) Actual Input × Budgeted Rate (2) Flexible Budget: Budgeted Input Allowed for Actual Output × Budgeted Rate (3) Allocated: Budgeted Input Allowed for Actual Output × Budgeted Rate (4) Variable MOH $245,000 (28,400 × $8) $227,200 (4,400 × 6 × $8) $211,200 (4,400 × 6 × $8) $211,200 Actual Costs Incurred (1) Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (2) Flexible Budget:

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