Derrington Manufacturing applies manufacturing overhead to products based on standard machine-hours. The budgeted fixed manufacturing overhead cost for the most recent month was $24,300, and the actual fixed manufacturing overhead cost for the month was $23,850. The company based its original budget on 6,000 machine-hours. The standard hours allowed for the actual output of the month totaled 6,400 machine hours. a. What was the overall fixed manufacturing overhead budget variance for the month? b. What was the fixed overhead rate? c. What was the volume variance?

Derrington Manufacturing applies manufacturing overhead to products based on standard machine-hours. The budgeted fixed manufacturing overhead cost for the most recent month was $24,300, and the actual fixed manufacturing overhead cost for the month was $23,850. The company based its original budget on 6,000 machine-hours. The standard hours allowed for the actual output of the month totaled 6,400 machine hours. a. What was the overall fixed manufacturing overhead budget variance for the month? b. What was the fixed overhead rate? c. What was the volume variance?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter12: Activity-based Management

Section: Chapter Questions

Problem 30P: Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs...

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Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 20X1: During 20X1, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred: Marston applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates. Required: 1. Prepare a performance report for Marstons manufacturing costs in the current year. 2. Assume that one of the products produced by Marston is budgeted to use 10,000 direct labor hours, 15,000 machine hours, and 500 moves and will be produced in five batches. A total of 10,000 units will be produced during the year. Calculate the budgeted unit manufacturing cost. 3. One of Marstons managers said the following: Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the previous budget really needs to provide more detailed information. For example, I know that the moving materials activity involves the use of forklifts and operators, and this information is lost when only the total cost of the activity for various levels of output is reported. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at 10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of 30,000 per year. Also, I know that fuel costs about 0.25 per move. Assuming that these are the only three items, expand the detail of the flexible budget for moving materials to reveal the cost of these three resource items for 20,000 moves and 40,000 moves, respectively. Based on these comments, explain how this additional information can help Marston better manage its costs. (Especially consider how activity-based budgeting may provide useful information for non-value-added activities.)
Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows: The standard price paid per pound of direct materials is 1.60. The standard rate for labor is 8.00. Overhead is applied on the basis of direct labor hours. A plantwide rate is used. Budgeted overhead for the year is as follows: The company expects to work 12,000 direct labor hours during the year; standard overhead rates are computed using this activity level. For every small stapler produced, the company produces two regular staplers. Actual operating data for the year are as follows: a. Units produced: small staplers, 35,000; regular staplers, 70,000. b. Direct materials purchased and used: 56,000 pounds at 1.5513,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct materials inventories. c. Direct labor: 14,800 hours3,600 hours for the small stapler and 11,200 hours for the regular stapler. Total cost of direct labor: 114,700. d. Variable overhead: 607,500. e. Fixed overhead: 350,000. Required: 1. Prepare a standard cost sheet showing the unit cost for each product. 2. Compute the direct materials price and usage variances for each product. Prepare journal entries to record direct materials activity. 3. Compute the direct labor rate and efficiency variances for each product. Prepare journal entries to record direct labor activity. 4. Compute the variances for fixed and variable overhead. Prepare journal entries to record overhead activity. All variances are closed to Cost of Goods Sold. 5. Assume that you know only the total direct materials used for both products and the total direct labor hours used for both products. Can you compute the total direct materials and direct labor usage variances? Explain.
Direct labor hours are estimated as 2,000 in Quarter 1; 2,100 in Quarter 2; 1,900 in Quarter 3; and 2,300 in Quarter 4. Prepare a manufacturing overhead budget using the information provided.
Calculating factory overhead The standard capacity of a factory is 8,000 units per month. Cost and production data follow: Calculate the amount of factory overhead allowed for the actual volume of production each month and the variance between budgeted and actual overhead for each month.
Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Previously, Sanjay Bhatt, Firenza Companys controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours. Sanjay has been asked to prepare bids for two jobs with the following information: The typical bid price includes a 40 percent markup over full manufacturing cost. Required: 1. Calculate a plantwide rate for Firenza Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate activity rates for the four overhead activities. What is the bid price of each job using these rates? 3. Which bids are more accurate? Why?
Georgia Gasket Co. budgets 8,000 direct labor hours for the year. The total overhead budget is expected to amount to 20,000. The standard cost for a unit of the companys product estimates the variable overhead as follows: The actual data for the period follow: Using the four-variance method, calculate the overhead variances. (Hint: First compute the budgeted fixed overhead rate.)
A company estimates its manufacturing overhead will be $840,000 for the next year. What is the predetermined overhead rate given each of the following Independent allocation bases? Budgeted direct labor hours: 90,615 Budgeted direct labor expense: $750000 Estimated machine hours: 150,000
Shinto Corp. uses a standard cost system and manufactures one product. The variable costs per product follow: Budgeted fixed overhead costs for the month are $4,000, and Shinto expected to manufacture 2,000 units. Actual production, however, was only 1,800 units. Materials prices were 10% over standard, and labor rates were 5% over standard. Of the factory overhead expense, only 80% was used, and fixed overhead was $100 over budget. The actual variable overhead cost was $4,800. In materials usage, 8% more parts were used than were allowed for actual production by the standard, and 6% more labor hours were used than were allowed. Required: Calculate the materials and labor variances. Calculate the variances for overhead by the four-variance method. (Hint: First compute the fixed and variable overhead rates per hour.)
Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: During the year, the company had the following activity: Actual fixed overhead was 12,000 less than budgeted fixed overhead. Budgeted variable overhead was 5,000 less than the actual variable overhead. The company used an expected actual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required: 1. Compute the unit cost using (a) absorption costing and (b) variable costing. 2. Prepare an absorption-costing income statement. 3. Prepare a variable-costing income statement. 4. Reconcile the difference between the two income statements.
Fargo Co. manufactures products in batches of 100 units per batch. The company uses a standard cost system and prepares budgets that call for 500 of these batches per period. Budgeted fixed overhead is $60,000 per period. The standard costs per batch follow: During the period, 503 batches were manufactured, and the following costs were incurred: Required: Calculate the variances for materials, labor, and overhead. For overhead, use the two-variance method. (Hint: Please use the information given about the budgeted fixed overhead to compute the variable overhead rate.)
Bach Instruments Inc. makes three musical instruments: flutes, clarinets, and oboes. The budgeted factory overhead cost is 2,948,125. Overhead is allocated to the three products on the basis of direct labor hours. The products have the following budgeted production volume and direct labor hours per unit: a. Determine the single plant wide overhead rate. b. Use the overhead rate in (a) to determine the amount of total and per-unit overhead allocated to each of the three products, rounded to the nearest dollar.
Minor Co. has a job order cost system and applies overhead based on departmental rates. Service Department 1 has total budgeted costs of 168,000 for next year. Service Department 2 has total budgeted costs of 280,000 for next year. Minor allocates service department costs solely to the producing departments. Service Department 1 cost is allocated to producing departments on the basis of machine hours. Service Department 2 cost is allocated to producing departments on the basis of direct labor hours. Producing Department 1 has budgeted 8,000 machine hours and 12,000 direct labor hours. Producing Department 2 has budgeted 2,000 machine hours and 12,000 direct labor hours. What is the total cost allocation from the two service departments to Producing Department 1? a. 173,600 b. 140,000 c. 134,400 d. 274,400