50,000 x $5/hr = $250,000
8-26

2.
The direct materials price variance indicates that DDC paid more for brass than they had
planned.
If this is because they purchased a higher quality of brass, it may explain why they
used less brass than expected (leading to a favorable material efficiency variance).
In turn, since
variable manufacturing overhead is assigned based on pounds of materials used, this directly led
to the favorable variable overhead efficiency variance.
The purchase of a better quality of brass
may also explain why it took less labor time to produce the doorknobs than expected (the
favorable direct labor efficiency variance).
Finally, the unfavorable direct labor price variance
could imply that the workers who were hired were more experienced than expected, which could
also be related to the positive direct material and direct labor efficiency variances.
8-29
(30 min.)
Comprehensive variance analysis.
1.
Budgeted number of machine-hours planned can be calculated by multiplying the number
of units planned (budgeted) by the number of machine-hours allocated per unit:
888 units
×
2 machine-hours per unit = 1,776 machine-hours.
2.
Budgeted fixed MOH costs per machine-hour can be computed by dividing the flexible
budget amount for fixed MOH (which is the same as the static budget) by the number of
machine-hours planned (calculated in (a.)):
$348,096 ÷ 1,776 machine-hours = $196.00 per machine-hour
3.
Budgeted variable MOH costs per machine-hour are calculated as budgeted variable
MOH costs divided by the budgeted number of machine-hours planned:
$71,040 ÷ 1,776 machine-hours = $40.00 per machine-hour.
4.
Budgeted number of machine-hours allowed for actual output achieved can be calculated
by dividing the flexible-budget amount for variable MOH by budgeted variable MOH
costs per machine-hour:
$76,800 ÷ $40.00 per machine-hour= 1,920 machine-hours allowed
5.
The actual number of output units is the budgeted number of machine-hours allowed for
actual output achieved divided by the planned allocation rate of machine hours per unit:
1,920 machine-hours ÷ 2 machine-hours per unit = 960 units.
6.
The actual number of machine-hours used per output unit is the actual number of
machine hours used (given) divided by the actual number of units manufactured:
1,824 machine-hours ÷ 960 units = 1.9 machine-hours used per output unit.
8-27

8-30
(60 min.)
Journal entries (continuation of 8-29).
1.
Key information underlying the computation of variances is:
Actual
Results
Flexible-Budget
Amount
Static-Budget
Amount
1.
Output units (food processors)
960
960
888
2.
Machine-hours
1,824
1,920
1,776
3.
Machine-hours per output unit
1.90
2.00
2.00
4.
Variable MOH costs
$76,608
$76,800
$71,040
5.
Variable MOH costs per machine-
hour (Row 4 ÷ Row 2)
$42.00
$40.00
$40.00
6.
Variable MOH costs per unit
(Row 4 ÷ Row 1)
$79.80
$80.00
$80.00
7.
Fixed MOH costs
$350,208
$348,096
$348,096
8.
Fixed MOH costs per machine-
hour (Row 7 ÷ Row 2)
$192.00
$181.30
$196.00
9.
Fixed MOH costs per unit (7 ÷ 1)
$364.80
$362.60
$392.00
Solution Exhibit 8-30 shows the computation of the variances.
Journal entries for variable MOH, year ended December 31, 2010:
Variable MOH Control
76,608
Accounts Payable Control and Other Accounts
76,608
Work-in-Process Control
76,800
Variable MOH Allocated
76,800
Variable MOH Allocated
76,800
Variable MOH Spending Variance
3,648