Flexible Budgets and Standard Cost Systems Chapter 23 23-1 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall
Flexible Budgets and StandardCost Systems
Chapter 23
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Learning Objectives
1. Prepare flexible budgets and performance reports using static and flexible budgets
2. Identify the benefits of a standard cost system and understand how standards are set
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Learning Objectives
3. Compute the standard cost variances for direct materials and direct labor
4. Compute the standard cost variances for manufacturing overhead
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Learning Objectives
5. Describe the relationship among and responsibility for the product cost variances
6. Record transactions in a standard cost system and prepare a standard cost income statement
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Learning Objective 1
Prepare flexible Prepare flexible budgets and budgets and
performance reports performance reports using static and using static and flexible budgetsflexible budgets
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Budgeting Objectives
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Budget Variance
The difference between:
•Actual amount
•Budgeted amount
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Static Budget Performance Report
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Favorable versus Unfavorable Variances
• Favorable (F) if an actual amount increases operating income
– Actual revenue > Budgeted revenue
– Actual expense < Budgeted expense
• Unfavorable (U) if an actual amount decreases operating income
– Actual revenue < Budgeted revenue
– Actual expense > Budgeted expense
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Static Budget Performance Report
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Information Needed toCreate a Flexible Budget
• Budgeted selling price per unit• Variable cost per unit
– Product Costs• Direct materials• Direct labor• Variable manufacturing overhead
– Variable selling and administrative expenses• Total fixed costs
– Fixed manufacturing overhead– Fixed selling and administrative expenses
• Different volume levels within the relevant range
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Flexible Budget
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Budget Variances
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Exhibit 23-4 Budget VariancesExhibit 23-4 Budget Variances
Flexible Budget Variance Sales Volume Variance
Static Budget Variance
Flexible BudgetBased on actual
number of units sold
Static BudgetBased on expectednumber of units sold
Actual Results
Variance Formulas
Flexible Budget Variance = Actual Results − Flexible Budget(based on 52,000 units sold) (based on 52,000 units sold)
Sales Volume Variance = Flexible Budget − Static Budget(based on 52,000 units sold) (based on 50,000 units sold)
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Flexible Budget Performance Report
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Sales Volume Variance$ 3,250 F
Flexible Budget Variance$ 680 U
Static Budget Variance$ 2,570 F
1. Garland Company expects to sell 600 wreaths in December 2014, but wants to plan for 100 more and 100 less than expected. The wreaths sell for $5.00 each and have variable costs of $2.00 each. Fixed costs are expected to be $500 for the month. Prepare a flexible budget for 500, 600, and 700 wreaths.
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Learning Objective 2
Identify the benefits of Identify the benefits of a standard cost system a standard cost system
and understand how and understand how standards are setstandards are set
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Standards
Set standards for
•Cost
•Efficiency (amount)
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Standard Setting Issues
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Cheerful Colors’Standard Cost Calculations
Exhibit 23-7 Standard Cost Calculations
Direct materials cost standard for paraffin:Purchase price, net of discounts $ 1.65 per poundDelivery, receiving, and inspection 0.10 per poundTotal standard cost per pound of paraffin $ 1. 75 per pound
Direct labor cost standard:Hourly wage $ 10.00 per direct labor hourPayroll taxes and fringe benefits 2.00 per direct labor hourTotal standard cost per direct labor hour $ 12.00 per direct labor hour
Variable overhead cost standard: Estimated variable overhead cost = $ 37,500Estimated quantity of allocation base 12,500 direct labor hours
= $ 3.00 per direct labor hour
Fixed overhead cost standard: Estimated fixed overhead cost = $ 25,000Estimated quantity of allocation base 12,500 direct labor hours
= $ 2.00 per direct labor hour
Exhibit 23-7 Standard Cost Calculations
Direct materials cost standard for paraffin:Purchase price, net of discounts $ 1.65 per poundDelivery, receiving, and inspection 0.10 per poundTotal standard cost per pound of paraffin $ 1. 75 per pound
Direct labor cost standard:Hourly wage $ 10.00 per direct labor hourPayroll taxes and fringe benefits 2.00 per direct labor hourTotal standard cost per direct labor hour $ 12.00 per direct labor hour
Variable overhead cost standard: Estimated variable overhead cost = $ 37,500Estimated quantity of allocation base 12,500 direct labor hours
= $ 3.00 per direct labor hour
Fixed overhead cost standard: Estimated fixed overhead cost = $ 25,000Estimated quantity of allocation base 12,500 direct labor hours
= $ 2.00 per direct labor hour
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Cheerful Colors’Efficiency Standards
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Standard Cost System Benefits
Standard costing helps managers:
•Prepare the master budget
•Set target levels of performance for flexible budgets
•Identify performance standards
•Set sales prices of products and services
•Decrease accounting costs
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Cost and Efficiency Variances
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Exhibit 23-8 Cost and Efficiency VariancesExhibit 23-8 Cost and Efficiency Variances
Actual Quantity Standard Quantity AllowedActual Quantity
Standard Cost Standard CostActual Cost
Cost Variance Efficiency Variance
Total Product Cost Variance
× × ×
Cost Variance Formula
Cost Variance = (Actual Cost × Actual Quantity) − (Standard Cost × Actual Quantity)
= (Actual Cost − Standard Cost) × Actual Quantity
= (AC − SC) × AQ
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Efficiency Variance Formula
Efficiency Variance = (Standard Cost × Actual Quantity) − (Standard Cost × Standard Quantity)
= (Actual Quantity − Standard Quantity) × Standard Cost
= (AQ − SQ) × SC
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Variance Relationships
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Exhibit 23-9 Variance RelationshipsExhibit 23-9 Variance Relationships
CostVariance
EfficiencyVariance
Flexible Budget Variance
Sales Volume Variance
Static Budget Variance
Flexible BudgetBased on actual
number of units sold
Static BudgetBased on expectednumber of units sold
Actual Results
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Match the definitions to the correct variance.
Variance Definition
2. Cost variance a. The difference between the expected results inthe flexible budget for the actual units sold and the static budget.
3. Efficiency variance b. The difference between actual results and the expected results in the flexible budget for theactual units sold.
4. Flexible budget variance c. Measures how well the business keeps unit costs of material and labor inputs within standards.
5. Sales volume variance d. The difference between actual results and the expected results in the static budget.
6. Static budget variance e. Measures how well the business uses itsmaterials or human resources.
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Match the definitions to the correct variance.
Variance Definition
2. Cost variance a. The difference between the expected results inthe flexible budget for the actual units sold and the static budget.
3. Efficiency variance b. The difference between actual results and the expected results in the flexible budget for theactual units sold.
4. Flexible budget variance c. Measures how well the business keeps unit costs of material and labor inputs within standards.
5. Sales volume variance d. The difference between actual results and the expected results in the static budget.
6. Static budget variance e. Measures how well the business uses itsmaterials or human resources.
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Match the definitions to the correct variance.
Variance Definition
2. Cost variance a. The difference between the expected results inthe flexible budget for the actual units sold and the static budget.
3. Efficiency variance b. The difference between actual results and the expected results in the flexible budget for theactual units sold.
4. Flexible budget variance c. Measures how well the business keeps unit costs of material and labor inputs within standards.
5. Sales volume variance d. The difference between actual results and the expected results in the static budget.
6. Static budget variance e. Measures how well the business uses itsmaterials or human resources.
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Match the definitions to the correct variance.
Variance Definition
2. Cost variance a. The difference between the expected results inthe flexible budget for the actual units sold and the static budget.
3. Efficiency variance b. The difference between actual results and the expected results in the flexible budget for theactual units sold.
4. Flexible budget variance c. Measures how well the business keeps unit costs of material and labor inputs within standards.
5. Sales volume variance d. The difference between actual results and the expected results in the static budget.
6. Static budget variance e. Measures how well the business uses itsmaterials or human resources.
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Match the definitions to the correct variance.
Variance Definition
2. Cost variance a. The difference between the expected results inthe flexible budget for the actual units sold and the static budget.
3. Efficiency variance b. The difference between actual results and the expected results in the flexible budget for theactual units sold.
4. Flexible budget variance c. Measures how well the business keeps unit costs of material and labor inputs within standards.
5. Sales volume variance d. The difference between actual results and the expected results in the static budget.
6. Static budget variance e. Measures how well the business uses itsmaterials or human resources.
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Match the definitions to the correct variance.
Variance Definition
2. Cost variance a. The difference between the expected results inthe flexible budget for the actual units sold and the static budget.
3. Efficiency variance b. The difference between actual results and the expected results in the flexible budget for theactual units sold.
4. Flexible budget variance c. Measures how well the business keeps unit costs of material and labor inputs within standards.
5. Sales volume variance d. The difference between actual results and the expected results in the static budget.
6. Static budget variance e. Measures how well the business uses itsmaterials or human resources.
Learning Objective 3
Compute the standard Compute the standard cost variances for cost variances for
direct materials and direct materials and direct labordirect labor
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Flexible Budget Variancesfor Production Costs
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Direct Materials Data
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Direct Materials Variances
Direct Materials Cost Variance = (AC – SC) × AQ
Direct Materials Efficiency Variance = (AQ – SQ) × SC
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Direct Materials Variances
Direct Materials Cost Variance = (AC – SC) × AQ
= ($1.60 per pound − $1.75 per pound) × 65,000 pounds
= $9,750 F
Direct Materials Efficiency Variance = (AQ – SQ) × SC
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Direct Materials Variances
Direct Materials Cost Variance = (AC – SC) × AQ
= ($1.60 per pound − $1.75 per pound) × 65,000 pounds
= $9,750 F
Direct Materials Efficiency Variance = (AQ – SQ) × SC
= (65,000 pounds − 52,000 pounds) × $1.75 per pound
= $22,750 U
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Direct Materials Variances
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$1.75 per pound×
52,000 pounds
SC × SQ
$91,000
$1.60 per pound×
65,000 pounds
AC × AQ
$104,000
$1.75 per pound×
65,000 pounds
SC × AQ
$113,750
CostVariance
$9,750 F
EfficiencyVariance
$22,750 U
Total Direct Materials Variance
$13,000 U
Exhibit 23-11 Direct Materials VariancesExhibit 23-11 Direct Materials Variances
Direct Labor Data
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Direct Labor Variances
Direct Labor Cost Variance = (AC – SC) × AQ
Direct Labor Efficiency Variance = (AQ – SQ) × SC
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Direct Labor Variances
Direct Labor Cost Variance = (AC – SC) × AQ
= ($14.00 per DLHr − $12.00 per DLHr) × 10,400 DLHr
= $20,800 U
Direct Labor Efficiency Variance = (AQ – SQ) × SC
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Direct Labor Variances
Direct Labor Cost Variance = (AC – SC) × AQ
= ($14.00 per DLHr − $12.00 per DLHr) × 10,400 DLHr
= $20,800 U
Direct Labor Efficiency Variance = (AQ – SQ) × SC
= (10,400 DLHr − 13,000 DLHr) × $12.00 per DLHr
= $31,200 F
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Direct Labor Variances
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$12.00 per DLHr×
13,000 DLHr
SC × SQ
$156,000
$14.00 per DLHr×
10,400 DLHr
AC × AQ
$145,600
$12.00 per DLHr×
10,400 DLHr
SC × AQ
$124,800
CostVariance
$20,800 U
EfficiencyVariance
$31,200 F
Total Direct Labor Variance
$10,400 F
Exhibit 23-12 Direct Labor VariancesExhibit 23-12 Direct Labor Variances
Tipton Company manufactures shirts. During June, Tipton made 1,200 shirts and gathered the following additional data:Direct materials cost standard $6.00 per yard of fabric
Direct materials efficiency standard 1.50 yards per shirt
Actual amount of fabric purchased and used 1,680 yards
Actual cost of fabric purchased and used $10,500
Direct labor cost standard $15.00 per DLHr
Direct labor efficiency standard 2.00 DLHr per shirt
Actual amount of direct labor hours 2,520 DLHr
Actual cost of direct labor $36,540
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Calculate the following variances:7.Direct materials cost variance
8.Direct materials efficiency variance
9.Total direct materials variance
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Calculate the following variances:7.Direct materials cost variance
Actual cost per yard = $10,500 yards / 1,680 yards= $6.25 per yard
Direct materials cost variance = (AC – SC) × AQ= ($6.25 per yard − $6.00 per yard) × 1,680 yards= $420 U
8.Direct materials efficiency variance
9.Total direct materials variance
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Calculate the following variances:7.Direct materials cost variance
Actual cost per yard = $10,500 yards / 1,680 yards= $6.25 per yard
Direct materials cost variance = (AC – SC) × AQ= ($6.25 per yard − $6.00 per yard) × 1,680 yards= $420 U
8.Direct materials efficiency varianceStandard quantity = 1.5 yards per shirt × 1,200 shirts
= 1,800 yards
Direct materials efficiency variance = (AQ – SQ) × SC= (1,680 yards − 1,800 yards) × $6.00 per yard= $720 F
9.Total direct materials variance
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Calculate the following variances:7.Direct materials cost variance
Actual cost per yard = $10,500 yards / 1,680 yards= $6.25 per yard
Direct materials cost variance = (AC – SC) × AQ= ($6.25 per yard − $6.00 per yard) × 1,680 yards= $420 U
8.Direct materials efficiency varianceStandard quantity = 1.5 yards per shirt × 1,200 shirts
= 1,800 yards
Direct materials efficiency variance = (AQ – SQ) × SC= (1,680 yards − 1,800 yards) × $6.00 per yard= $720 F
9.Total direct materials variance = $420 U + $720 F= $300 F
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Calculate the following variances:10.Direct labor cost variance
11.Direct labor efficiency variance
12.Total direct labor variance
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Calculate the following variances:10.Direct labor cost variance
Actual cost per direct labor hour = $36,540 / 2,520 DLHr= $14.50 per DLHr
Direct labor cost variance = (AC – SC) × AQ= ($14.50 per DLHr − $15.00 per DLHr) × 2,520 DLHr= $1,260 F
11.Direct labor efficiency variance
12.Total direct labor variance
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Calculate the following variances:10.Direct labor cost variance
Actual cost per direct labor hour = $36,540 / 2,520 DLHr= $14.50 per DLHr
Direct labor cost variance = (AC – SC) × AQ= ($14.50 per DLHr − $15.00 per DLHr) × 2,520 DLHr= $1,260 F
11.Direct labor efficiency varianceStandard quantity = 2 DLHr per shirt × 1,200 shirts
= 2,400 DLHr
Direct labor efficiency variance = (AQ – SQ) × SC= (2,520 DLHr − 2,400 DLHr) × $15.00 per DLHr= $1,800 U
12.Total direct labor variance
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Calculate the following variances:10.Direct labor cost variance
Actual cost per direct labor hour = $36,540 / 2,520 DLHr= $14.50 per DLHr
Direct labor cost variance = (AC – SC) × AQ= ($14.50 per DLHr − $15.00 per DLHr) × 2,520 DLHr= $1,260 F
11.Direct labor efficiency varianceStandard quantity = 2 DLHr per shirt × 1,200 shirts
= 2,400 DLHr
Direct labor efficiency variance = (AQ – SQ) × SC= (2,520 DLHr − 2,400 DLHr) × $15.00 per DLHr= $1,800 U
12.Total direct labor variance = $1,260 F + $1,800 U= $540 U
Learning Objective 4
Compute the standard Compute the standard cost variances for cost variances for
manufacturing manufacturing overheadoverhead
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Allocating Overheadin a Standard Cost System
Overhead allocatedto production
=Standard overhead
allocation rate×
Standard quantity of the allocationbase allowed for actual output
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Budgeted Allocation Base
Budgeted allocation base = 50,000 batches × 0.25 direct labor hours per batch
= 12,500 DLHr
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Standard Overhead Allocation Rate
Standard overhead = Budgeted overhead costallocation rate Budgeted allocation base
= Budgeted VOH* + Budgeted FOHBudgeted allocation base Budgeted allocation base
*VOH = Variable overhead; FOH = Fixed overhead
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Standard Overhead Allocation Rate
Standard overhead = Budgeted overhead costallocation rate Budgeted allocation base
= Budgeted VOH* + Budgeted FOHBudgeted allocation base Budgeted allocation base
Standard overhead = $37,500 + $25,000allocation rate 12,500 DLHr 12,500 DLHr
= $3.00 per DLHr + $2.00 per DLHr
= $5.00 per DLHr
*VOH = Variable overhead; FOH = Fixed overhead
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Variable Overhead Data
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Variable Overhead Variances
Variable Overhead Cost Variance = (AC – SC) × AQ
Variable Overhead Efficiency Variance = (AQ – SQ) × SC
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Variable Overhead Variances
Variable Overhead Cost Variance = (AC – SC) × AQ
= ($2.90 per DLHr − $3.00 per DLHr) × 10,400 DLHr
= $1,040 F
Variable Overhead Efficiency Variance = (AQ – SQ) × SC
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Variable Overhead Variances
Variable Overhead Cost Variance = (AC – SC) × AQ
= ($2.90 per DLHr − $3.00 per DLHr) × 10,400 DLHr
= $1,040 F
Variable Overhead Efficiency Variance = (AQ – SQ) × SC
= (10,400 DLHr − 13,000 DLHr) × $3.00 per DLHr
= $7,800 F
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Variable Overhead Variances
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$3.00 per DLHr×
13,000 DLHr
SC × SQ
$39,000
$2.90 per DLHr×
10,400 DLHr
AC × AQ
$30,160
$3.00 per DLHr×
10,400 DLHr
SC × AQ
$31,200
CostVariance
$1,040 F
EfficiencyVariance
$7,800 F
Total Variable Overhead Variance
$8,840 F
Exhibit 23-13 Variable Overhead VariancesExhibit 23-13 Variable Overhead Variances
Fixed Overhead Variances
Fixed Overhead Cost Variance = Actual fixed overhead – Budgeted fixed overhead
Fixed Overhead Volume Variance = Budgeted fixed overhead – Allocated fixed overhead
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Fixed Overhead Variances
Fixed Overhead Cost Variance = Actual fixed overhead – Budgeted fixed overhead
= $23,920 − $25,000
= $1,080 F
Fixed Overhead Volume Variance = Budgeted fixed overhead – Allocated fixed overhead
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Allocating Overheadin a Standard Cost System
Overhead allocatedto production
=Standard overhead
allocation rate×
Standard quantity of the allocationbase allowed for actual output
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Allocating Overheadin a Standard Cost System
Overhead allocatedto production
=Standard overhead
allocation rate×
Standard quantity of the allocationbase allowed for actual output
= $2.00 per DLHr × (0.25 DLHr per batch × 52,000 batches)
= $2.00 per DLHr × 13,000 DLHr
= $26,000
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Fixed Overhead Variances
Fixed Overhead Cost Variance = Actual fixed overhead – Budgeted fixed overhead
= $23,920 − $25,000
= $1,080 F
Fixed Overhead Volume Variance = Budgeted fixed overhead – Allocated fixed overhead= $25,000 − $26,000
= $1,000 F
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Fixed Overhead Volume Variance
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Fixed Overhead Variances
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Allocated FixedOverhead
$26,000
Actual FixedOverhead
$23,920
Budgeted FixedOverhead
$25,000
CostVariance
$1,080 F
VolumeVariance
$1,000 F
Total Fixed Overhead Variance
$2,080 F
Exhibit 23-15 Fixed Overhead VariancesExhibit 23-15 Fixed Overhead Variances
This Try It! continues the previous Try It! During June, Tipton made 1,200 shirts but had budgeted production at 1,400 shirts. The allocation base for fixed overhead is direct labor hours. Tipton gathered the following additional data:Variable overhead cost standard $0.50 per DLHr
Direct labor efficiency standard 2.00 DLHr per shirt
Actual amount of direct labor hours 2,520 DLHr
Actual cost of variable overhead $1,512
Fixed overhead cost standard $0.25 per DLHr
Budgeted fixed overhead $700
Actual cost of fixed overhead $750
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Calculate the following variances:13.Variable overhead cost variance
14.Variable overhead efficiency variance
15.Total variable overhead variance
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Calculate the following variances:13.Variable overhead cost varianceActual variable cost per direct labor hour= $1,512 / 2,520 DLHr
= $0.60 per DLHr
Variable overhead cost variance = (AC – SC) × AQ= ($0.60 per DLHr − $0.50 per DLHr) × 2,520 DLHr= $252 U
14.Variable overhead efficiency variance
15.Total variable overhead variance
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Calculate the following variances:13.Variable overhead cost varianceActual variable cost per direct labor hour= $1,512 / 2,520 DLHr
= $0.60 per DLHr
Variable overhead cost variance = (AC – SC) × AQ= ($0.60 per DLHr − $0.50 per DLHr) × 2,520 DLHr= $252 U
14.Variable overhead efficiency varianceStandard quantity = 2 DLHr per shirt × 1,200 shirts
= 2,400 DLHr
Variable overhead efficiency variance = (AQ – SQ) × SC= (2,520 DLHr − 2,400 DLHr) × $0.50 per DLHr= $60 U
15.Total variable overhead variance
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Calculate the following variances:13.Variable overhead cost varianceActual variable cost per direct labor hour= $1,512 / 2,520 DLHr
= $0.60 per DLHr
Variable overhead cost variance = (AC – SC) × AQ= ($0.60 per DLHr − $0.50 per DLHr) × 2,520 DLHr= $252 U
14.Variable overhead efficiency varianceStandard quantity = 2 DLHr per shirt × 1,200 shirts
= 2,400 DLHr
Variable overhead efficiency variance = (AQ – SQ) × SC= (2,520 DLHr − 2,400 DLHr) × $0.50 per DLHr= $60 U
15.Total variable overhead variance = $252 U + $60 U= $312 U
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Calculate the following variances:16.Fixed overhead cost variance
17.Fixed overhead volume variance
18.Total fixed overhead variance
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Calculate the following variances:16.Fixed overhead cost variance
Fixed overhead cost variance = Actual fixed overhead − Budgeted fixed overhead= $750 − $700= $50 U
17.Fixed overhead volume variance
18.Total fixed overhead variance
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Calculate the following variances:16.Fixed overhead cost variance
Fixed overhead cost variance = Actual fixed overhead − Budgeted fixed overhead= $750 − $700= $50 U
17.Fixed overhead volume varianceOverhead allocated = Standard overhead × Standard
quantity of the allocation to production allocation rate base allowed for actual output
= $0.25 per DLHr × (2.00 DLHr per shirt × 1,200 shirts)= $0.25 per DLHr × 2,400 DLHr
= $600
Fixed overhead efficiency variance = Budgeted fixed overhead − Allocated fixed overhead= $700 − $600= $100 U
18.Total fixed overhead variance
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Calculate the following variances:16.Fixed overhead cost variance
Fixed overhead cost variance = Actual fixed overhead − Budgeted fixed overhead= $750 − $700= $50 U
17.Fixed overhead volume varianceOverhead allocated = Standard overhead × Standard
quantity of the allocation to production allocation rate base allowed for actual output
= $0.25 per DLHr × (2.00 DLHr per shirt × 1,200 shirts)= $0.25 per DLHr × 2,400 DLHr
= $600
Fixed overhead efficiency variance = Budgeted fixed overhead − Allocated fixed overhead= $700 − $600= $100 U
18.Total fixed overhead variance = $50 U + $100 U= $150 U
Learning Objective 5
Describe the Describe the relationship among relationship among
and responsibility for and responsibility for the product cost the product cost
variancesvariances
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Flexible Budget Variancesfor Production Costs
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Summary of Variances
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Product Cost Variance Relationships
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Variances Greater than $5,000
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Management by Exception
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Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.
Variance Manager
19. Variable overhead cost variance a. Human resources
20. Direct materials efficiency variance b. Purchasing
21. Direct labor cost variance c. Production
22. Fixed overhead cost variance
23. Direct materials cost variance
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Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.Variance Manager19. Variable overhead cost variance c. Production20. Direct materials efficiency variance 21. Direct labor cost variance 22. Fixed overhead cost variance23. Direct materials cost variance
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Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.
Variance Manager
19. Variable overhead cost variance c. Production
20. Direct materials efficiency variance c. Production
21. Direct labor cost variance
22. Fixed overhead cost variance
23. Direct materials cost variance
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Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.
Variance Manager
19. Variable overhead cost variance c. Production
20. Direct materials efficiency variance c. Production
21. Direct labor cost variance a. Human resources
22. Fixed overhead cost variance
23. Direct materials cost variance
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 23-90
Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.
Variance Manager
19. Variable overhead cost variance c. Production
20. Direct materials efficiency variance c. Production
21. Direct labor cost variance a. Human resources
22. Fixed overhead cost variance c. Production
23. Direct materials cost variance
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 23-91
Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.
Variance Manager
19. Variable overhead cost variance c. Production
20. Direct materials efficiency variance c. Production
21. Direct labor cost variance a. Human resources
22. Fixed overhead cost variance c. Production
23. Direct materials cost variance b. Purchasing
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Learning Objective 6
Record transactions in Record transactions in a standard cost system a standard cost system and prepare a standard and prepare a standard cost income statementcost income statement
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Transaction 1Direct Materials Purchased
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A
=
L + E
Transaction 1Direct Materials Purchased
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A ↑
=
L ↑ + E ↑
RM↑ A/P ↑ DM Cost Var. ↑
Transaction 2Direct Materials Usage
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A
=
L + E
Transaction 2Direct Materials Usage
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A ↓
=
L + E ↓
WIP ↑RM↓
DM Eff. Var. ↓
Transaction 3Direct Labor
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A
=
L + E
Transaction 3Direct Labor
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A ↑
=
L ↑ + E ↑
WIP ↑ Wages Pay. ↑ DL Cost Var. ↓DL Eff. Var. ↑
Transaction 4Manufacturing Overhead
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A
=
L + E
Transaction 4Manufacturing Overhead
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A ↓
=
L ↑ + E ↓
Accum. Deprn. ↑Cash ↓
Prepaid Ins. ↓
A/P ↑ Mfg. OH ↑
Transaction 5Overhead Allocated
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A
=
L + E
Transaction 5Overhead Allocated
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A ↑
=
L + E ↑
WIP ↑ Mfg. OH ↓
Transaction 6Completed Goods
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A
=
L + E
Transaction 6Completed Goods
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A ↑
=
L + E
FG ↑WIP ↓
Transaction 7Cost of Goods Sold
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A
=
L + E
Transaction 7Cost of Goods Sold
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A ↓
=
L + E ↓
FG ↓ COGS ↑
Transaction 8Adjust Manufacturing Overhead
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A
=
L + E
Transaction 8Adjust Manufacturing Overhead
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A
=
L + E ↑↓
MOH↑VOH Cost Var. ↑VOH Eff. Var. ↑FOH Cost Var. ↑FOH Vol. Var.↑
Flow of Costs in aStandard Cost System
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Exhibit 23-18 Flow of Costs in a Standard Cost SystemExhibit 23-18 Flow of Costs in a Standard Cost System
Standard Cost Income Statement
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*From Exhibit 23-5**$19,200 + $25,600 from Exhibit 23-5
Gunter Company reported the following manufacturing overhead variances.
Variable overhead cost variance $ 320 F
Variable overhead efficiency variance 458 U
Fixed overhead cost variance 667 U
Fixed overhead volume variance 625 F
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24. Record the journal entry to adjust Manufacturing Overhead.
25. Was Manufacturing Overhead overallocated or underallocated?
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24. Record the journal entry to adjust Manufacturing Overhead.
Variable Overhead Efficiency Variance 458
Fixed Overhead Cost Variance 667
Variable Overhead Cost Variance 320
Fixed Overhead Volume Variance 625
Manufacturing Overhead 180
To adjust Manufacturing Overhead
25. Was Manufacturing Overhead overallocated or underallocated?
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24. Record the journal entry to adjust Manufacturing Overhead.
Variable Overhead Efficiency Variance 458
Fixed Overhead Cost Variance 667
Variable Overhead Cost Variance 320
Fixed Overhead Volume Variance 625
Manufacturing Overhead 180
To adjust Manufacturing Overhead
25. Was Manufacturing Overhead overallocated or underallocated?
Manufacturing Overhead was adjusted with a credit balance, which indicates overhead was underallocated.
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End of Chapter 23
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