Question

Complete the problems below on variance analysis.

Morgan Clay Products manufactures clay molded pottery on an assembly line. Its standard costing system uses two cost categories, direct materials and conversion costs. Each product must pass through the Molding Department and the Finishing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production.

Data for the Assembly Department for August 2017 are:
Work in process, beginning inventory: 2600 units
Direct materials (100% complete)
Conversion costs (35% complete)

Units started during August 715 units

Work in process, ending inventory: 520 units
Direct materials (100% complete)
Conversion costs (55% complete)

Costs for August:
Standard costs for Assembly:
Direct materials $18 per unit
Conversion costs $35.50 per unit

Work in process, beginning inventory:
Direct materials $12,600
Conversion costs $8250

Part 2A: Variance Problem
Castleton Corporation manufactured 36,000 units during March. The following fixed overhead data relates to March:
Actual Static Budget
Production 36,000 units 34,000 units
Machine-hours 6,960 hours 6,800 hours
Fixed overhead costs for March $164,700 $156,400
Compute the fixed overhead variances.

Part 2B: Variance Problem
Russo Corporation manufactured 21,000 air conditioners during November. The overhead cost-allocation base is $34.50 per machine-hour. The following variable overhead data pertain to November:

Actual Budgeted
Production 21,000 units 23,000 units
Machine-hours 12,700 hours 13,800 hours
Variable overhead cost per machine-hour:
$34.00 $34.50
Compute the variable overhead variances.

Answer 1

Fixed overhead
Fixed OH Volume Variance	$     9,200.00	Favorable
Fixed OH Budget Variance	$     8,300.00	Unfavorable
Fixed OH Cost Variance	$         900.00	Favorable

Fixed Overhead Volume Variance = (Actual Activity – Normal Activity) × Budgeted Fixed Overhead Rate
Minus sign indicate Favorable variance.
Budgeted Fixed Overheads	156,400
Actual Fixed Overheads	164,700
Budgeted units	34,000
Actual units	36,000
Overhead rate =( Budgeted Fixed Overheads / Budgeted units)
Applied Fixed Overhead = (Budgeted Fixed Overhead Rate * Actual units)
Budgeted Fixed Overhead Rate (156400/34000)	$                     4.60
Budgeted Fixed Overheads	156400
Less: Applied Fixed Overhead (4.6*36000)	-165600
Fixed OH Volume Variance	$                (9,200)
Indicate	Favorable
Actual Fixed Overheads	164700
Less: Budgeted Fixed Overheads	-156400
Fixed OH Budget Variance	$                  8,300
Indicate	Unfavorable
Fixed OH Cost Variance (Total of both variance)	$                    (900)
Indicate	Favorable

Variable Overhead
Variable OH Rate Variance	$     6,350.00	Favorable
Variable OH Efficiency Variance	$     3,450.00	Unfavorable
Variable OH Cost Variance	$     2,900.00	Favorable

	Standard machine hours per units (13800/23000)	0.60
	Minus sign indicate Favorable variance.
	Measure	Machine Hour
	Standard variable overhead rate per Machine Hour	$              34.50
	Actual variable overhead rate per Machine Hour	$              34.00
21000*0.60	Standard Machine Hours	12,600
	Actual Machine Hours	12,700
	Actual variable overhead rate per Machine Hour	34.00
Less	Standard variable overhead rate per Machine Hour	-34.50
	Difference	-0.50
Multiply	Actual Machine Hours	12700
	Variable OH Rate Variance	$     (6,350.00)
	Indicate	Favorable
	Actual Machine Hours	12700
Less	Standard Machine Hours	-12600
	Difference	100
Multiply	Standard variable overhead rate per Machine Hour	34.50
	Variable OH Efficiency Variance	$        3,450.00
	Indicate	Unfavorable
	Variable OH Cost Variance (Total of both variance)	$     (2,900.00)
	Indicate	Favorable