Assignment #1

Overhead Variance

Sample Problem

Reagan Company planned to produce 20,000 units of product and work 100,000 direct labor hours in 2009. Manufacturing overhead at the 100,000 direct labor
hours level of activity was estimated to be:
Variable manufacturing overhead Php 700,000
Fixed manufacturing overhead 300,000
Total manufacturing overhead Php1,000,000
At the end of 2009, 21,000 units of product were actually produced and 108,000 actual direct labor hours were worked. Total actual overhead costs for 2009 were
Php1,025,000.

Instructions
(a) Compute the total overhead variance.
a
(b) Compute the overhead controllable variance.
a
(c) Compute the overhead volume variance.

ANSWER:

A. Total Overhead Variance is $25,000 Favorable

 
B. Overhead Controllable variance is $10,000 Favorable
 
C. Overhead Volume Variance is $15,000 Favorable

Explanation:
One- way variance analysis:         Computation:                    Legend:
               FOH Variance                    AFOH -SFOH                     AFOH: Actual FOH 
                                                                                                     SFOH: Standard FOH=(SH× SR)
Two-way variance analysis:
               Controllable variance      AFOH-BASH                        Actual FOH
                                                                                              -BASH: Budget Adjusted for Standard Hours
 
 
               Volume variance              BASH-SFOH                        BASH- Applied FOH
 
Standard FOH Rate in the problem = $1,000,000/ 100,000DLH = $10/DLH
 
Standard DLH per unit = 100,000DLH/ 20,000units= 5DLH/unit
 
A. Total Overhead Variance (One way Variance)
Actual FOH                                              $1,025,000
Standard FOH (21,000*5DLH x $10)   $1,050,000
Total Overhead Variance                       $    25,000 FAVORABLE.
 
B. Overhead Controllable Variance (Part of Two way Variance)
Actual FOH                                                                      $1,025,000
BASH  
     Variable Overhead   (21,000*5*7)        735,000
     Fixed as Budgeted                                300,000     $1,035,000
Controllable Variance                                                      $10,000  FAVORABLE
 
C. Overhead Volume Variance (Part of Two way Variance)
BASH                                                       $ 1,035,000
Applied Overhead (21,000*5*10)          $ 1,050,000
Volume Variance                                     $ 15,000 FAVORABLE
 

Assignment
1. Concorde Industries provided the following information about its standard costing system for 2019:

Standard Data Actual Data

Labor 2 hrs. @ Php21 per hr. Produced 8,000 units
Budgeted fixed overhead Php100,000 Labor worked 15,000 hrs. costing Php300,000
Budgeted variable overhead Php30 per unit Actual overhead Php355,000
Budgeted production 10,000 units

Concord Industries applies fixed overhead at Php10 per unit produced.

Instructions
Determine the amounts of the overhead variances.
Answer : Unfavorable amount of Php 15,000
 
Solution :
Description   Amount

Budgeted Overhead Cost based on Actual Output    

Budgeted Variable Overhead (30 x 8,000) 240,000   

Budgeted Fixed Overhead 100,000   

Total Budgeted Overhead Costs   340,000 

Less : Actual Overhead   (355,000)

Overhead Variance (Unfavorable)   (15,000)

Explanation:
Thank you.

ADDITIONAL ANSWERS FROM OTHER TUTORS:

Overhead controllable variance
= Actual Factory Overhead - Budgeted Factory Overhead 
= Php355,000 - [(8,000 units x Php30 per unit) + Php100,000]
= Php355,000 - Php340,000
= Php15,000 unfavorable (since actual overhead cost paid is higher that the budgeted overhead)
 
Overhead volume variance
= Budgeted Factory Overhead - Applied Factory Overhead
= Php340,000 - (8,000 units x Php40 per unit*)
=  Php340,000 - Php320,000
= Php20,000 unfavorable (since there is a capacity for 2,000 more units not used since only 8,000 units were produced given that 10,000 units are budgeted)
 
Total overhead variance
= Actual Factory Overhead - Applied Factory Overhead
= Php355,000 - Php320,000
= Php35,000 unfavorable (in total, actual overhead incurred is higher that what is initially applied to production)
or 
Total overhead variance
= Overhead controllable variance + Overhead volume variance
= Php15,000 unfavorable + Php20,000 unfavorable
= Php30,000 unfavorable (still the same answer as to above computation)
 

Explanation:
*Applied factory overhead per unit
Variable overhead                                      Php30
Fixed overhead (Php100,000 / 10,000 units)            10
Total                                                                Php40    
 
Additional notes:
1. Controllable variance generally pertains to variable cost. 
2. The volume variance pertains solely to fixed cost.

2 PROBLEM: AMCAR
2. The following information was taken from the annual manufacturing overhead cost budget of Amcar Company:

Variable manufacturing overhead costs Php124,000

Fixed manufacturing overhead costs Php62,000
Normal production level in direct labor hours 31,000
Normal production level in units 15,500

During the year, 15,000 units were produced, 32,000 hours were worked, and the actual manufacturing overhead costs were Php190,000. The actual fixed
manufacturing overhead costs did not deviate from the budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours.

Instructions
(a) Compute the total, fixed, and variable predetermined manufacturing overhead rates.
a
(b) Compute the total, controllable, and volume overhead variances.

SOLUTION TO THE PROBLEM FROM OTHER TUTORS: AMCAR

  (a)  Compute the total, fixed, and variable predetermined manufacturing overhead rates. 
   Variable predetermined manufacturing overhead rate                  4.00 

   Fixed predetermined manufacturing overhead rate                  2.00 

 (b)  Compute the total, controllable, and volume overhead variances. 

     Fixed   Variable   Total 

   Controllable Variance  -    8,000.00 Unfavorable  8,000.00 Unfavorable 

   Volume Variance  2,000.00 Unfavorable  -    2,000.00 Unfavorable 

   Total Variance (Controllable + Volume Variance)  2,000.00 Unfavorable  8,000.00 Unfavorable  10,000.00 Unfavorable 

Explanation:
  (a)  Compute the total, fixed, and variable predetermined manufacturing overhead rates. 

   Variable manufacturing overhead costs     124,000.00 

   divide by: Normal production level in direct labor hours             31,000 

   Variable predetermined manufacturing overhead rate                  4.00 

     

   Fixed manufacturing overhead costs       62,000.00 

   divide by: Normal production level in direct labor hours             31,000 

   Fixed predetermined manufacturing overhead rate                  2.00 

 (b)  Compute the total, controllable, and volume overhead variances. 

     Fixed   Variable   Total 

   Actual Overhead       

        Fixed:           62,000.00             62,000.00 

        Variable: 32,000 actual hours x 4 variable overhead rate           128,000.00         128,000.00 

   Actual Overhead           62,000.00         128,000.00         190,000.00 

   Less: Budgeted or Standard Hours x Standard Rate       

        Fixed: 31,000 budgeted hours x 2 fixed overhead rate           62,000.00             62,000.00 

        Variable: 30,000 standard hours* x 4 variable overhead rate           120,000.00         120,000.00 

   Budgeted or Standard Hours x Standard Rate           62,000.00         120,000.00         182,000.00 

         

   Controllable Variance                            -                8,000.00              8,000.00 

       Unfavorable   Unfavorable 

   Budgeted or Standard Hours x Standard Rate           62,000.00         120,000.00         182,000.00 

   Less: Standard Overhead       

        Fixed: 30,000 standard hours* x 2 fixed overhead rate           60,000.00             60,000.00 

        Variable: 30,000 standard hours* x 4 variable overhead rate           120,000.00         120,000.00 

   Standard Overhead           60,000.00         120,000.00         180,000.00 

         

   Volume Variance              2,000.00                            -                2,000.00 

     Unfavorable     Unfavorable 

   Total Variance (Controllable + Volume Variance)              2,000.00              8,000.00           10,000.00 

     Unfavorable   Unfavorable   Unfavorable 

 Normal production level in direct labor hours                 31,000 

 divide by: Normal production level in units                 15,500 

 Standard hours per unit                      2.00  

 x actual units produced                 15,000 

 *Total Standard hours           30,000.00 

.
Answer: POSSIBLE ANSWER :SAME PROBLEM , DIFFERENT GIVEN AMOUNT

The following information was taken from the annual manufacturing overhead cost budget of Ashley Company:

Variable manufacturing overhead costs $124,000

Fixed manufacturing overhead costs $93,000
Normal production level in direct labor hours 62,000
Normal production level in units 31,000

During the year, 30,000 units were produced, 64,000 hours were worked, and the actual manufacturing overhead costs were $225,000. The actual fixed
manufacturing overhead costs did not deviate from the budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours.

(a) Compute the total, fixed, and variable predetermined manufacturing overhead rates. (b) Compute the total, controllable, and volume overhead variances.
Answer
Requirement A
Variable Predetermined overhead rate = 124,000 / 62,000
Variable Predetermined overhead rate = 2

Fixed predetermined overhead rate = 93,000 / 62,000

Fixed predetermined overhead rate = 1.50

Total Predetermined overhead rate = (124,000 + 93,000) / 62,000

Total Predetermined overhead rate = 217,000 / 62,000
Total Predetermined overhead rate = 3.50
Alternative formula: 2 Variable + 1.50 Fixed = 3.50
Requirement B
Controllable Variance
Actual Factory Overhead............................................... 225,000
Budgeted Allowance based on standard hours..

3. Presented below is a flexible manufacturing budget for Nusselt Company, which manufactures fine timepieces:

Activity Index:
Standard direct labor hours 2,000 3,200 3,600 4,000
Variable costs
Indirect materials Php 4,000 Php 6,400 Php 7,200 Php 8,000
Indirect labor 2,300 3,680 4,140 4,600
Utilities 5,200 8,320 9,360 10,400
Total variable 11,500 18,400 20,700 23,000
Fixed costs
Supervisory salaries 1,000 1,000 1,000 1,000
Rent 3,000 3,000 3,000 3,000
Total fixed 4,000 4,000 4,000 4,000
Total costs Php15,500 Php22,400 Php24,700 Php27,000

The company applies the overhead on the basis of direct labor hours at Php7.00 per direct labor hour and the standard hours per timepiece is 1/2 hour each. The
company's actual production was 5,800 timepieces with 2,900 actual hours of direct labor. Actual overhead was Php21,200.

Instructions
(a) Compute the controllable and volume overhead variances.
a
(b) Prepare the entries for manufacturing overhead during the period and the entry to recognize the overhead variances at the end of the period.

 Activity Index       

 Standard Direct Labor Hours                          2,000.00                          3,000.00                          3,600.00                          4,000.00 

 Variable Cost         

 Indirect Material   $    4,000.00   $    6,400.00   $   7,200.00   $   8,000.00 

 Indirect Labor   $    2,300.00   $    3,680.00   $   4,140.00   $   4,600.00 
 Utilities   $    3,200.00   $    5,120.00   $   5,760.00   $   6,400.00 

 Total Variable   $    9,500.00   $ 15,200.00   $ 17,100.00   $ 19,000.00 

 Fixed Cost         

 Supervisory Salaries   $    1,000.00   $    1,000.00   $   1,000.00   $   1,000.00 

 Rent   $    3,000.00   $    3,000.00   $   3,000.00   $   3,000.00 

 Total Fixed   $    4,000.00   $    4,000.00   $   4,000.00   $   4,000.00 

 Total Cost   $    9,500.00   $ 15,200.00   $ 17,100.00   $ 19,000.00 

 Overhead                                 6.00   per direct labor hour   

 Standard hour per dining chair   1/2Hours       

 Actual Production                          5,800.00   Dining Chair     

 Acctual Direct Labor hours                          3,000.00       

 Actual Overhead   $ 18,200.00       

 Fixed Overhead   $    4,100.00       

 Variable Overhead($18200-$4100)   $ 14,100.00       

Explanation:
 Variable Overhead Variance=Standard Quantity of overhead for actual production at standard rate-Actual variable overhead 

 Standard overhead Rate=(Total Variable Overhead)/Standard Hour)=($9500/2000)=$4.75   $            4.75     

 Standard Quantity of overhead for actual production=(5800*1/2*$4.75)   $ 13,775.00     

 Actual Variable Overhead   $ 14,100.00     

 Variable overhead variance   $       325.00   (U)   

       

 Fixed Overhead Variance=Budgeted Overhead-Overapplied       

 Overhead=                                 6.00   Per direct labor hour 

 Variable Overhead                                 4.75   Per direct labor hour 

 Fixed Overhead                                 1.25   Per direct labor hour 

 Budgeted Overhead                          4,100.00     

 Overhead applied=5800*1/2*$1.25                          3,625.00     

 Fixed Overhead Variance=($4100-$3625)                             475.00   (U)   

 b)   General Journal   Debit   Credit 

 Debit   Manufacturing Overhead   $ 18,200.00   

 Credit    Accounts Payable/Cash     $ 18,200.00 

   (Being amount of Overhead incurred)     

       

 Debit   Work in Process($13775+$3625)   $ 17,400.00   

 Credit   Manufacturing Overhead     $ 17,400.00 

   (Being amount of overhead assigns to production)     

       

 Debit   Variable Overhead budget variance   $       325.00   

 Debit   Fixed overhead Variance   $       475.00   

 Credit   Manufacturing Overhead     $       800.00 

   (Being amount of Overhead variance recognized) 

Other tutors answered:

a. 525 unfavorable controllable variance; 375 unfavorable volume variance

b. entries are provided below
Sample Problem

Zena Company uses a standard cost accounting system. During March, 2009, the company reported the following manufacturing variances:
Materials price variance Php1,600 F
Materials quantity variance 2,400 U
Labor price variance 600 U
Labor quantity variance 2,200 U
Overhead controllable 500 F
Overhead volume 3,000 U

In addition, 15,000 units of product were sold at Php18 per unit. Each unit sold had a standard cost of Php12. Selling and administrative expenses for the month were
Php10,000.

Instructions
Prepare an income statement for management for the month ending March 31, 2009.

Solution
ZENA COMPANY
Income Statement
For the Month Ended March 31, 2009

Sales (15,000 × Php18)........................................................................ Php270,000

Cost of goods sold (15,000 × Php12).................................................... 180,000
Gross profit (at standard)...................................................................... 90,000

Variances:
Materials price.............................................................................. Php(1,600)
Materials quantity......................................................................... 2,400
Labor price................................................................................... 600
Labor quantity............................................................................... 2,200
Overhead controllable.................................................................. (500)
Overhead volume......................................................................... 3,000
Total variances (unfavorable).............................................. 6,100
Gross profit (actual)............................................................................... 83,900
Selling and administrative expenses..................................................... 10,000
Net income............................................................................................ Php 73,900

Answer:

The following is the payroll record for Morgan Smith for the month of September;        
     Pieces completed:         Week I                 1,068
                                           Week II                1,174
                                           Week III               1,222
                                           Week IV               1,227
 
     The piece work rate is as follows:  20 cents for the first 2,000 pieces completed; 25 cents for the next 1,000 pieces completed, and 50 cents for any pieces
above 3,000 that are completed.
 
     EI deduction                      -       29.63
     CPP deduction                  -       20.00
     Income Tax deduction      -     154.80
     Union Dues                       -       35.00
     Company Pension             -       5% of gross earnings
 
     The company matches the employee contributions to Company Pension.
 
REQUIRED: 
 
(a)     Calculations for:
 
         i)    total number of pieces completed
        ii)    gross earnings
       iii)    company pension
       iv)    net earnings
 
(b)     General Journal entries for September 30 for:
 
         i)    Recording the September payroll
            ii)             Recording the employer's contribution to 
                1.  Employment Insurance
                2.  Company Pension Plan
                3.  Canada Pension
       iii)    Recording the remittance to Revenue Canada
       iv)    Recording the remittance of Company Pension to Great West Life
            v) Recording the remittance of the Union Dues to the United Auto Workers Union
Answer and explanations
The answers were based from the given data wherein the pieces completed are stated by week. 
 
A.
i) 4, 691 pieces were compeleted
ii) $1,495.5 is the gross earnings
iii) $74.78 is the company pension
iv) $1,181.32 is the net earnings. 
 
The explanation and step-by-step process is stated in the explanation box.
Step-by-step explanation

I can only answer problem A since there are missing data.