In: Accounting
Original Budget |
Actual |
Flexible Budget |
|
Units Produced (in units) |
10,000 |
12,000 |
? |
Materials used (kg) |
400 |
700 |
? |
Material cost ($) |
8,000 |
See purchases |
? |
Direct Labour (hours) |
35,000 |
46,102 |
? |
Direct Labour ($) |
385,000 |
507,080 |
? |
Variable Overhead ($) |
350,000 |
419,161 |
? |
Fixed Overhead ($) |
160,000 |
161,000 |
? |
Other Information
Overhead is Allocated on Direct Labour Hours
During the year, 800 kg of materials were purchased for $5,000
Beginning Inventory: none
Ending Inventory: 100kg
Required:
Calculate the flexible budget amounts for all items.
Calculate the following variances
Answer-
Original Budget |
Actual |
Flexible Budget |
|
Units Produced (in units) |
10,000 |
12,000 |
12,000 |
Materials used (kg) |
400 |
700 |
480 |
Material cost ($) |
8,000 |
4,375 |
9,600 |
Direct Labour (hours) |
35,000 |
46,102 |
42,000 |
Direct Labour ($) |
385,000 |
507,080 |
462,000 |
Variable Overhead ($) |
350,000 |
419,161 |
420,000 |
Fixed Overhead ($) |
160,000 |
161,000 |
192,000 |
Material per unit= 400/10,000= 0.04 , For 12,000 units 12,000*0.04= 480 kg.
Material cost per unit= 8,000/400= 20, for 480 kg= 480*20= 9,600
Direct Labor hour per unit= 35,000/10,000= 3.4, For 12,000 units 12,000*3.5= 42,000 hours
Direct labor cost per hour= 385,000/ 35,000= 11. For 42,000 hours, 42,000 *11= 462,000
Variable overhead rate per hour= 350,000/35,000= 10
Variable overheads= 42,000 labor hours *$10 per hour 420,000
Fixed overhead 192,000
A-Direct material price variance= (Standard rate - Actual rate)* Actual quantity of material consumed
Actual quantity of material consumed = 700 kgs
Standard rate per kg= $20
Actual rate per kg= 5,000/ 800= $6.25 kg
Material price variance= (20-6.25) *700
=$9,625 favourable
B-Direct material quantity variance = (Standard material for actual output -Actual material used)* standard rate
Standard material for actual output= (Actual output * standard material per unit ) 12,000*0.04= 480 kgs
Actual quantity of material consumed = 700 kgs
Standard rate per kg= $20
Material quantity variance= (480-700)*20
=$4,400 unfavorable
C-Direct Labor rate variance= (Standard rate-Actual rate) * Actual hours paid
Standard rate per labor hour =$385,000/ 35,000= $11
Actual direct labor hours worked= 46,102 labor hours]
Actual rate= 507,080/ 46,102= $11
Labor price variance =(11-11)*0
=0
D-Direct labor efficiency variance= (Standard hours for actual output-Actual hours worked)* Standard rate per labor hour
Standard rate per labor hour= $11
Actual direct labor hours worked= 46,102 labor hours
Standard hours for actual output= 12,000 *3.5= 42,000 hours
Labor efficiency variance= (42,000-46,102)*11
=$45,122 unfavorable
E-Variable overhead rate variance= (Standard rate per hour* Actual hours)- (Actual rate per hour * Actual hour)
Actual direct labor hours worked= 46,102 labor hours
Standard rate per hour= 350,000/35,000= 10
Actual rate per hour= 419,161/ 46,102= $9.09
Variable overhead rate variance= (10-9.09) *46,102
=$41,952.80 favorable
F-Variable overhead efficiency variance = Standard variable overhead rate per hour *(Standard hours for actual output - Actual hours)
Actual direct labor hours worked= 46,102 labor hours
Standard hours for actual output= 12,000*3.5 per hour= 42,000 hours
Standard rate per hour= $10
Variable overhead efficiency variance= (42,000-46,102)* 10
=$41,020 unfavorable
G- Fixed overhead rate variance= Budgeted fixed overheads - Actual fixed overheads
Actual fixed overhead= $161,000
Budgeted fixed overhead= $160,000
Fixed overhead rate variance= 160,000-161,000
=$1,000 unfavorable
H-Fixed overhead production volume= Standard fixed overhead rate per unit *(Actual putput- Budgeted output)
Standard fixed overhead rate per unit= 160,000/ 10,000= $16
Actual output= 12,000 units
Budgeted output= 10,000 units
Fixed overhead production volume=(12,000-10,000) *16
=$32,000 favorable
I-On assuming Material, Labor and Variable overhead are inter related. The mostly likely single cause of these variances can be justified with the example follows. If a company purchases low quality input it will require more labor working on that which will increase the labor costs and also variable overheads so all are impacted with the single decision of a company so it can be said that they are relted.
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