The cheque-clearing office of Pay Loans Company is responsible for processing all cheques that come to the company for payment. Managers at the company believe that variable overhead costs are essentially proportional to the number of labour-hours worked in the office, so labour-hours are used as the activity base when preparing variable overhead budgets and performance reports. Data for October, the most recent month, appear below: Budgeted labour-hours. Actual labour-hours. Standard labour-hours allowed for the actual number of cheques processed Variable overhead costs: Office supplies Staff coffee lounge. Indirect labour Total variable overhead cost Cost Formula (per labour hour) $ 1.10 0.30 2.70 $ 4.10 Actual Costs Incurred in October $ 1,391 463 2,980 $ 4,834 1,380 1,310 1,400 Fixed overhead at Pay Loans Company consists entirely of supervisory salaries and is applied at a rate of $6 per direct labour-hour. Actual fixed overhead costs totalled $6,200 in October, while the flexible budget was $6,000 for the month. Required: Prepare an overhead performance report for October for the cheque-clearing office that includes both spending and efficiency variances for variable overhead and the budget variance for fixed overhead. (Indicate the effect of each variance by selecting "F" for
The cheque-clearing office of Pay Loans Company is responsible for processing all cheques that come to the company for payment. Managers at the company believe that variable overhead costs are essentially proportional to the number of labour-hours worked in the office, so labour-hours are used as the activity base when preparing variable overhead budgets and performance reports. Data for October, the most recent month, appear below: Budgeted labour-hours. Actual labour-hours. Standard labour-hours allowed for the actual number of cheques processed Variable overhead costs: Office supplies Staff coffee lounge. Indirect labour Total variable overhead cost Cost Formula (per labour hour) $ 1.10 0.30 2.70 $ 4.10 Actual Costs Incurred in October $ 1,391 463 2,980 $ 4,834 1,380 1,310 1,400 Fixed overhead at Pay Loans Company consists entirely of supervisory salaries and is applied at a rate of $6 per direct labour-hour. Actual fixed overhead costs totalled $6,200 in October, while the flexible budget was $6,000 for the month. Required: Prepare an overhead performance report for October for the cheque-clearing office that includes both spending and efficiency variances for variable overhead and the budget variance for fixed overhead. (Indicate the effect of each variance by selecting "F" for
Chapter1: Financial Statements And Business Decisions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
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The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:The cheque-clearing office of Pay Loans Company is responsible for processing all cheques that come to the company for payment.
Managers at the company believe that variable overhead costs are essentially proportional to the number of labour-hours worked in
the office, so labour-hours are used as the activity base when preparing variable overhead budgets and performance reports. Data for
October, the most recent month, appear below:
Budgeted labour-hours
Actual labour-hours
Standard labour-hours allowed for the actual number of cheques processed
Variable overhead costs:
Office supplies
Staff coffee lounge.
Indirect labour
Total variable overhead cost
Cost
Formula
(per
labour-
hour)
$ 1.10
0.30
2.70
$4.10
Actual
Costs
Incurred in
October
$ 1,391
463
2,980
$ 4,834
1,380
1,310
1,400
Fixed overhead at Pay Loans Company consists entirely supervisory salaries and is applied at a rate of $6 per direct labour-hour.
Actual fixed overhead costs totalled $6,200 in October, while the flexible budget was $6,000 for the month.
Required:
Prepare an overhead performance report for October for the cheque-clearing office that includes both spending and efficiency
variances for variable overhead and the budget variance for fixed overhead. (Indicate the effect of each variance by selecting "F" for
favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
Transcribed Image Text:Overhead costs
Variable overhead costs:
Office supplies
Staff coffee lounge
Indirect labour
Total variable overhead cost
Fixed overhead costs:
Supervisory salaries
Total overhead cost
Cost
Formula
(per labour-
hour)
$
$
Actual Costs
Incurred for
1,310 Labour-
Hours
1.10 S
0.30
2.70
4.10 $
$
1,391
463
2,980
4,834
6,200
11,034
PAY LOANS COMPANY
Overhead Performance Report
For the Month Ended October 31
Flexible
Budget Based
on 1,310
Labour-Hours
Flexible
Budget Based
on 1,400
Labour-Hours
Total Variance
Breakdown of the Total Variance
Spending (Budget)
Variance
Efficiency Variance
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