SOLUTION:

Requirement 1:

Based on the static budget:

Estimated machine hours 30,000
Divide by estimated units to be produced 6,000
Standard machine hours per unit 5

Requirement 2:
Actual Direct Material Cost:
A42 aluminum 540,000
S18 steel alloy 166,000 706,000
Divide by actual units produced 6,200
Direct material cost per unit 113.87

Requirement 3:
At 32,000 MHs activity Direct Material Cost:
A42 aluminum 537,600
S18 steel alloy 166,400 704,000
Divide by estimated units based on 32,000 MHs 6,400
Standard direct material cost per unit 110.00
Divide by Standard machine hours per unit 5
Standard direct material cost per machine hour 22.00

At 31,000 MHs activity Direct Material Cost:

A42 aluminum 520,800
S18 steel alloy 161,200 682,000
Divide by estimated units based on 31,000 MHs 6,200
Standard direct material cost per unit 110.00
Divide by Standard machine hours per unit 5
Standard direct material cost per machine hour 22.00

At 30,000 MHs activity Direct Material Cost:

A42 aluminum 504,000
S18 steel alloy 156,000 660,000
Divide by estimated units based on 30,000 MHs 6,000
Standard direct material cost per unit 110.00
Divide by Standard machine hours per unit 5
Standard direct material cost per machine hour 22.00

Requirement 4:
At 32,000 MHs activity Direct Labor Cost:
Assembler 582,400
Grinder 499,200 1,081,600
Divide by estimated 32,000 MHs 32,000
Standard direct labor cost per hour 33.80
Multiply by number of hours per unit 5
Standard direct labor cost per unit 169.00

Requirement 5:
Maintenance (variable cost)
Variable rate per hour 1.60
Supplies (variable cost)
Variable rate per hour 8.60
Supervision (mixed cost)
Variable rate per hour (168000-160000) 4.00
32000-30000
Inspection (mixed cost)
Variable rate per hour (300000-288000) 6.00
32000-30000

Variable overhead rate per hour 20.20

Requirement 6:
Supervision (fixed component)
160,000 = a + 4.00(30,000)
a = 40,000 40,000
Inspection (fixed component)
288,000 = a + 6.00(30,000)
a = 108,000 108,000
Insurance 100,000
Depreciation 400,000
Total Budgeted Fixed Overhead 648,000
Divide by machine hours (planned level of activity) 30,000
Fixed overhead rate per hour 21.60

Requirement 7:
Actual total overhead 1,266,000
Less: Actual fixed overhead 648,000
Actual variable overhead 618,000
Actual hours x Std. variable overhead rate per hour 646,400
Variable overhead spending variance 28,400 FAVORABLE

Requirement 8:
Actual hours x Std. variable overhead rate per hour 646,400
Std hours allowed x Std. variable overhead rate per hour 626,200
Variable overhead efficiency variance 20,200 UNFAVORABLE

Requirement 9:
Actual fixed overhead 648,000
Budgeted fixed overhead 648,000
Fixed overhead budget variance -

Requirement 10:
Budgeted fixed overhead 648,000
Std hours allowed x Std. variable overhead rate per hour 669,600
Fixed overhead volume variance 21,600 FAVORABLE

Checking:
Actual overhead cost 1,266,000
Less: Standard overhead cost 1,295,800
FAVORABLE 29,800

Variable overhead spending variance 28,400 F

Variable overhead spending variance 20,200 U
Fixed overhead budget variance -
Fixed overhead volume variance 21,600 F
Total overhead variance 29,800 F

Requirement 11:

Flexible Budget 30,250 hours

Direct material
A42 aluminum 508,200
S18 steel alloy 157,300
Direct labor
Assembler 550,550
Grinder 471,900
Production overhead
Maintenance 48,400
Supplies 260,150
Supervisor 161,000
Inspection 289,500
Insurance 100,000
Depreciation 400,000
TOTAL COST 2,947,000
SOLUTION:
Requirement 1: Contribution Report
Flexible Budget Actual Cost Variance
Units in pounds 225,000 225,000

Revenue 1,800,000 1,777,500 22,500 U

Direct material 326,250 432,500 106,250 U
Direct labor 189,000 174,000 15,000 F
Variable overhead 364,500 375,000 10,500 U
Total variable costs 879,750 981,500 101,750 U

Contribution margin 920,250 796,000 124,250 U

Requirement 2:

Contribution margin 920,250

Requirement 3:
The new contribution margin is computed based on the actual units, and not on the normal capacity in units.
The revised analysis indicates an unfavorable variance.

Requirement 4:
Total variance = 124,250 Unfavorable

Direct material price variance

Cookie mix
Actual Qty x Actual Price 46,500
Actual Qty x Std Price 46,500
-
 Milk chocolate
Actual Qty x Actual Price 266,000
Actual Qty x Std Price 199,500
66,500 UF
Almonds
Actual Qty x Actual Price 120,000
Actual Qty x Std Price 120,000
-
Direct material quantity variance
Cookie mix
Actual Qty x Std Price 46,500
Std Qty allowed x Std Price 45,000
1,500 UF
Milk chocolate
Actual Qty x Std Price 199,500
Std Qty allowed x Std Price 168,750
30,750 UF
Almonds
Actual Qty x Std Price 120,000
Std Qty allowed x Std Price 112,500
7,500 UF

Direct labor variance

Mixing
Actual direct labor 54,000
Actual hours x Std Rate 54,000
-

Baking
Actual direct labor 120,000
Actual hours x Std Rate 120,000
-

Direct efficiency variance

Mixing
Actual hours x Std Rate 54,000
Std hours x Std Rate 54,000
-

Baking
Actual hours x Std Rate 120,000
Std hours x Std Rate 135,000
15,000 F

Variable overhead spending variance

Actual variable overhead 375,000
 Actual hours x Std Rate
Mixing 121,500
Baking 216,000 337,500
37,500 UF

Variable overhead efficiency variance

Actual hours x Std Rate
Mixing 121,500
Baking 216,000 337,500
Std hours allowed x Std Rate
Mixing 121,500
Baking 243,000 364,500
27,000 F

Sales price variance

Actual units x Actual price 1,777,500
Actual units x Budgeted price 1,800,000
22,500 UF

Requirement 5:
a. Not all items of overhead are affected by the number of direct labor hours used by the production.
There is no direct link between direct labor hours and overhead especially if the production process is not labor-intensive. (e.g.

b. ABC gives more accurate production costs. We use the cost driver that truly controls the cost of overhead that will be incure
Entities with high overhead costs use activity-based costing to have a clear analysis of where money is going.
not labor-intensive. (e.g., using machines in the production

rhead that will be incured.