PROBLEM 8-41

1 Variable Overhead
Actual variable overhead cost
Less:
Actual machine hours 310,000
Multiply by budgeted rate 1.80
Variable overhead spending variance

Actual machine hours

Multiply by budgeted rate
Total (375,000/150,000 = 2.5)
Actual suitcases produced and sold (120,000*2.5) 300,000
Multiply by budgeted rate 1.80
Variable overhead efficiency variance

Fixed Overhead
Fixed overhead costs
Less: Static-Budget Fixed overhead costs
Fixed overhead spending variance

Static-Budget Fixed overhead costs

Actual suitcases produced and sold (120,000*2.5) 300,000
Multiply by budgeted rate (525,000/375,000) 1.40
Fixed overhead production volume variance

2
Flexible-Budget
Actual Results Variances Flexible Budget
(1) (2) = (1) - (3) (3)
Units sold 120,000 120,000
Selling price 72 80
Revenues 8,640,000 - 9,600,000
Variable costs
Direct materials
Direct manufacturing labor
Variable manufacturing overhead
Total variable costs
Contribution margin
Fixed manufacturing costs
Operating income

3 Sales Revenues (120,000 * 80) $ 9,600,000

Less: Cost of goods sold
Actual suitcases produced and sold 120,000
Multiply by Budgeted cost
 Variable direct materials costs 20
Variable direct manufacturing labor costs 18
Variable overhead (1.80*2.5) 4.5
Fixed Overhead (1.40*2.5) 3.5 46 $ 5,520,000
Operating Income - Budgeted $ 4,080,000

(375,000/150,000 = 2.5)

4 Operating Income - Budgeted $ 4,080,000

Less: Production volume variance 105,000
Flexible budget operating income $ 3,975,000
Less: Flexible budget variance
Actual operating income $ 3,975,000
 527,000

558,000
(31,000) F

310,000
1.80
558,000

540,000
18,000 U

532,400
525,000
7,400 U

525,000

420,000
105,000 U

Sales-Volume
Variances Static Budget
(4) = (3) - (5) (5)
150,000
80
- 12,000,000