Chapter 11, Problem 44P

For each of the following independent Cases A and B, fill in the missing information. The company budgets and applies production overhead costs on the basis of direct-labor hours. (U denotes unfavorable variance; F denotes favorable variance.)

To determine

Calculate the missing amount for each of the given independent case A and B.

Explanation of Solution

Flexible Budget: A flexible budget is a budget that is prepared for different levels of the output. In other words, it is a budget that adjusts according to the changes in the volume of the activity. The main purpose of preparing flexible budget is to determine the differences among standard and actual result.

Calculate the missing amount for each of the given independent case A and B as follows:

Particulars	Case A	Case B
1. Standard variable overhead rate	$2.50 per hour	$4.00 per hour (13)
2. Standard fixed overhead rate	$7.00 per hour (2)	$9.00 per hour (14)
3. Total standard overhead rate	$9.50 per hour (3)	$13.00 per hour
4. Flexible budget for variable overhead	$ 90,000	$ 6,400 (15)
5. Flexible budget for fixed overhead	$ 210,000	$ 18,000 (16)
6. Actual variable overhead	$ 98,050 (4)	$ 8,000 (17)
7. Actual fixed overhead	$ 207,000	$ 19,080 (18)
8. Variable overhead spending variance	$5,550 U	$2,000 U
9. Variable overhead efficiency variance	$2,500 U (5)	$400 F
10. Fixed overhead budget variance	$3,000 F (6)	$1,080 U
11. Fixed overhead volume variance	-$42,000 (7)	$3,600 U
12. Under (over) applied variable overhead	$8,050 Under applied (8)	$1,600 Under applied (19)
13. Under (over) applied fixed overhead	$45,000 over applied (9)	$4,680 under applied (21)
14. Budgeted production (in units)	5,000 units	1,000 units (22)
15. Standard direct labor hours per unit	6 hours per unit	2 hours per unit
16. Actual production (in units)	6,000 units (10)	800 units (23)
17. Standard direct labor hours allowed for actual production	36,000 hours	1,600 hours
18. Actual direct labor hours	37,000 hours	1,500 hours
19. Applied variable overhead	$ 90,000 (11)	$ 6,400 (24)
20. Applied fixed overhead	$ 252,000 (12)	$ 14,400 (25)

Table (1)

Working note (1):

Calculate the budgeted direct labor hours for Case A.

$\begin{array}{c}\text{Budgeted direct labor hours = }\left(\begin{array}{l}\text{Budgeted production}\times \\ \text{Standard direct labor hours per unit}\end{array}\right)\\ =5,000\text{ units}\times \text{6 hours per unit}\\ \text{=30,000 hours}\end{array}$

Working note (2):

Calculate the standard fixed overhead rate for Case A.

$\begin{array}{c}\text{Standard fixed overhead rate = }\frac{\text{Budgeted fixed overhead }}{\text{Budgeted direct labor hours}}\\ =\frac{\$210,000}{30,000\text{ hours (1)}}\\ =\$7\text{ per hour}\end{array}$

Working note (3):

Calculate the total standard overhead rate for Case A.

$\begin{array}{c}\text{Standard overhead rate = }\left[\begin{array}{l}\text{Variable overhead rate + }\\ \text{Fixed overhead rate}\end{array}\right]\\ =\$2.50+\$7.00\\ =\$9.50\end{array}$

Working note (4):

Calculate the actual variable overhead for Case A.

$\begin{array}{c}\begin{array}{l}\text{Variable overhead }\\ \text{spending variance}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Actual variable overhead}-\\ \left[\begin{array}{l}\text{Actual direct labor hours}\times \\ \text{Standard variable overhead rate}\end{array}\right]\end{array}\right)\\ \$5,500\text{U=}\left(\begin{array}{l}\text{Actual variable overhead}-\\ \left(37,000\text{hours }\times \text{\$2}\text{.50}\right)\end{array}\right)\\ \text{Actual variable overhead = \$98,050}\end{array}$

Working note (5):

Calculate the variable overhead efficiency variance for Case A.

$\begin{array}{c}\begin{array}{l}\text{Variable overhead }\\ \text{efficiency variance }\end{array}\}\text{= }\left(\begin{array}{l}\text{Actual quantity}-\\ \text{Standard quantity}\end{array}\right)\times \text{Standard variable rate}\\ \text{=}\left(37,000\text{ hours}-36,000\text{hours}\right)\times \$2.50\\ =\$2,500\text{U}\end{array}$

Working note (6):

Calculate the fixed overhead budget variance for Case A.

$\begin{array}{c}\begin{array}{l}\text{Fixed overhead }\\ \text{budget variance}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Actual fixed overhead}-\\ \text{Budgeted fixed overhead}\end{array}\right)\\ =\$207,000-\$210,000\\ =\$3,000\text{ F}\end{array}$

Working note (7):

Calculate the fixed overhead volume variance for Case A.

$\begin{array}{c}\begin{array}{l}\text{Fixed overhead }\\ \text{volume variance}\end{array}\}\text{ =}\left(\begin{array}{l}\text{ Budgeted fixed overhead}-\\ \text{Applied fixed overhead}\end{array}\right)\\ =\$210,000-\left(36,000\text{ hours}\times \text{\$7}\right)\\ =(\$42,000)\end{array}$

Working note (8):

Calculate the under applied variable overhead for Case A.

$\begin{array}{c}\text{Underapplied variable overhead = }\left[\begin{array}{l}\text{Actual variable overhead}-\\ \text{Applied variable overhead}\end{array}\right]\\ =\$98,050-\left(36,000\text{ hours}\times \text{\$2}\text{.50}\right)\\ =\$8,050\text{ Underapplied}\end{array}$

Working note (9):

Calculate the over applied fixed overhead for Case A.

$\begin{array}{c}\text{Over applied fixed overhead = }\left(\begin{array}{l}\text{Actual fixed overhead }-\\ \text{Applied fixed overhead}\end{array}\right)\\ =\$207,000-\left(36,000\text{ hours}\times \text{\$7}\right)\\ =\$45,000\text{ overapplied}\end{array}$

Working note (10):

Calculate the actual production for Case A.

$\begin{array}{c}\text{Actual production = }\frac{\text{Standard allowd direct labor hours}}{\text{Standard hours per unit}}\\ =\frac{36,000\text{units}}{6}\\ =6,000\text{ units}\end{array}$

Working note (11):

Calculate the applied variable overhead for Case A.

$\begin{array}{c}\text{Applied variable overhead = }\left(\begin{array}{l}\text{Standard hours }\times \\ \text{Standard variable rate}\end{array}\right)\\ =36,000\text{ hours}\times \text{\$2}\text{.50}\\ \text{=\$90,000}\end{array}$

Working note (12):

Calculate the applied fixed overhead for Case A.

$\begin{array}{c}\text{Applied fixed overhead = Standard hour }\times \text{Fixed overhead rate}\\ \text{=36,000 hours}\times \text{\$7}\\ \text{=\$252,000}\end{array}$

Working note (13):

Calculate the variable overhead efficiency variance for Case B.

$\begin{array}{c}\begin{array}{l}\text{Variable overhead }\\ \text{efficiency variance}\end{array}\}=\left(\begin{array}{l}\text{Actual quantity}-\\ \text{Standard quantity}\end{array}\right)\times \text{Standard variable rate}\\ \$400\text{F=}\left(1,500\text{ hours}-1,600\text{ hours}\right)\times \text{Standard variable rate}\\ \text{Standard variable rate = \$4}\end{array}$

Working note (14):

Calculate the standard fixed overhead rate for Case B.

$\begin{array}{c}\begin{array}{l}\text{Standard fixed }\\ \text{overhead rate}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Total stanard overhead rate}-\\ \text{Standard variable rate}\end{array}\right)\\ =\$13-\$4\\ =\$9\end{array}$

Working note (15):

Calculate the flexible budget for variable overhead for Case B.

$\begin{array}{c}\begin{array}{l}\text{Flexible budget }\\ \text{for variable overhead}\end{array}\}\text{ = Standard quantity }\times \text{Standard variable rate}\\ \text{=1,600 hours}\times \text{\$4}\\ \text{=\$6,400}\end{array}$

Working note (16):

Calculate the flexible budget for fixed overhead for Case B.

$\begin{array}{c}\begin{array}{l}\text{Flexible budget }\\ \text{for fixed overhead }\end{array}\}\text{= Applied fixed overhead+Volume variance}\\ \text{=}\left(1,600\text{ hours}\times \text{\$9}\right)+\$3,600\\ =\$18,000\end{array}$

Working note (17):

Calculate the actual variable overhead for Case B.

$\begin{array}{c}\text{Actual variable overhead = }\left(\begin{array}{l}\text{Applied variable + Spending varaince +}\\ \text{ Efficiency variance}\end{array}\right)\\ \text{=}\left(1,600\text{ hours}\times \text{\$4}\right)+\$2,000\text{ U}-\$400\text{ F}\\ \text{=\$8,000}\end{array}$

Working note (18):

Calculate the actual fixed overhead for Case B.

$\begin{array}{c}\text{Actual fixed overhead = }\left(\begin{array}{l}\text{Budgeted fixed overhead}\text{+}\\ \text{Fixed overhead budget variance}\end{array}\right)\\ =\$18,000+\$1,080\text{U}\\ =\$19,080\end{array}$

Working note (19):

Calculate the under applied variable overhead for Case B.

$\begin{array}{c}\text{Underapplied varaible overhead =}\left(\begin{array}{l}\text{ Spending variance +}\\ \text{ Efficiency variance}\end{array}\right)\\ \text{=\$2,000 U}-\$400\text{ F}\\ \text{=\$1,600 Underapplied}\end{array}$

Working note (20):

Calculate the under applied fixed overhead for Case B.

$\begin{array}{c}\text{Underapplied fixed overhead = }\left[\begin{array}{l}\text{Fixed overhead budget variance+}\\ \text{Volume variance}\end{array}\right]\\ =\$1,080\text{U+\$3,600}\\ \text{=\$4,680 Underapplied}\end{array}$

Working note (21):

Calculate the budgeted direct labor hours for Case B:

$\begin{array}{c}\begin{array}{l}\text{Budgeted direct}\\ \text{ labor hours}\end{array}\}\text{ = }\frac{\text{Budgeted fixed overhead}}{\text{Fixed overhead rate}}\\ =\frac{\$18,000}{\$9}\\ =2,000\text{ hours}\end{array}$

Working note (22):

Calculate the budgeted production for Case B:

$\begin{array}{c}\text{Budgeted production = }\frac{\text{Budgeted direct labor hours}}{\text{Standard hours per unit}}\\ =\frac{2,000\text{ hours (21)}}{2\text{ hours per unit }}\\ =1,000\text{ units}\end{array}$

Working note (23):

Calculate the actual production for Case B:

$\begin{array}{c}\text{Actual production = }\frac{\text{Standard allowed hours}}{\text{Standard hours per unit}}\\ =\frac{1,600\text{ hours}}{2\text{ hours per units}}\\ =800\text{ units}\end{array}$

Working note (24):

Calculate the applied variable overhead for Case B:

$\begin{array}{c}\text{Applied variable overhead = Standard hours}\times \text{Standard variable rate}\\ \text{=1,600 hours}\times \text{\$4}\\ \text{=\$6,400}\end{array}$

Working note (25):

Calculate the applied fixed overhead for Case B:

$\begin{array}{c}\text{Applied fixed overhead = }\left(\begin{array}{l}\text{Standard hours}\times \\ \text{Standard fixed overhead rate}\end{array}\right)\\ \text{=1,600 hours}\times \text{\$9}\\ \text{=\$14,400}\end{array}$