ACCT 2121: Ch 8.
Problem
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Problem 1
AtoZ Company manufactures tables. The company budgets fixed overhead to be $10,000 for the
month of August. The company applies overhead costs to jobs on the basis of direct labour hours. The
company has the following direct labour standards: It expects each table will take two hours to make,
and the company anticipates making 1,000 tables.
During August, the company produced 1,200 tables and workers worked a total of 2,200 hours. Actual
fixed overhead incurred for August was $10,500.
Required:
Compute the company’s fixed manufacturing overhead spending and volume variances.
Solution:
Spending variance = 10,500 – 10,000 = $500 U
Volume variance = 10,000 – Budgeted FMOH per LH (=$10,000/(1000 tables*2LH/table)) *
Budgeted LH per output (=2 LH/table) * actual output (=1,200 tables)
Problem 2 (Comprehensive question for Ch 7. and 8)
Solution:
a.) DM Price variance = (AP-SP)*AQ purchased = (21,450/5,500kg – 4)*5,500kg = $550F
DM Efficiency variance = (AQ used – SQ)*SP = ((5,500-700) – 5kg/bucket*1,000
buckets)*4= $800 F
DM FB variance = $1,350F
Can continue to work
b.) DL Price variance= (2640/220LH - $10) *220 LH = $440 U
DL Efficiency variance = (220LH – 0.25LH * 1,000) *$10 = $300F
DL FB variance = $140 U
Not successful.
c.) VMOH spending variance = (AVMOHR -SVMOHR)*ACAB = ($1,050/220LH -
$1375/275LH)*220LH = $50 F
VMOH efficiency variance = (ACAB -SCAB)*SVMOHR = (220LH – 1,000 buckets *
Budgeted LH/Bucket (=275/1,100)) * $5 = $150 F
VMOH FB variance = $200 F
d.) FMOH spending variance = Actual – budget = $800-825 = $25 F
FMOH efficiency variance = never a variance
Production volume variance= Budget – applied = $825 – Actual Budget * Budgeted
FMOH/Bucket = $825 - 1000*($825/1,100) = $75 U