Question

1. You are given the following information for the May overhead expenses as follows:

    Budgeted output quantity                                        12,800

    Budgeted fixed manufacturing overhead          $80,000

    Budgeted variable manufacturing overhead      $20/direct labor hour

    Budgeted direct manufacturing labor hours       8 hours/unit

    Fixed manufacturing costs incurred                 $104,000

    Direct manufacturing labor hours used                28,800

    Variable manufacturing costs incurred            $142,400

    Actual quantity manufactured                               13,600   

a.    Compute a 4-variance analysis

b.    Compute a 3-variance analysis

c.     Compute a 2-variance analysis

d.    Compute the flexible-budget variance.

Answer 1

(a) 4-variance analysis:

• Variable overhead spending variance = $142,400 - (28,800 x $20) = $433,600 favorable
• Variable overhead efficiency variance = $20 x [28,800 - (13,600 x 8)] = $1,600,000 favorable
• Fixed overhead spending variance = $104,000 - $80,000 = $24,000 unfavorable
• Fixed overhead production-volume variance = $80,000 - (13,600 x 8 x $0.78125*) = $5,000 favorable

*$80,000/(12,800 units x 8 hours) = $0.78125

(b) 3-variance analysis:

• Spending variance = $433,600 favorable + $24,000 unfavorable = $409,600 favorable
• Efficiency variance = $1,600,000 favorable
• Production-volume variance = $5,000 favorable

(c) 2-variance analysis:

• Flexible-budget variance = $433,600 favorable + $1,600,000 favorable + $24,000 unfavorable = $2,009,600 favorable
• Production-volume variance = $1,250 favorable

(d) Flexible-budget variance:

	Actual	Flexible Budget	Variance
Fixed overhead	$ 104,000	$ 85,000	$ 19,000	Unfavorable
Variable overhead	$ 142,400	$ 2,176,000	$ 2,033,600	Favorable
Flexible-budget variance			$ 2,014,600	Favorable