ASG 3 Soloist PDF

Kevin Jordan / 2201743264
PROBLEM 1
Lindon Company's flexible budget for variable manufacturing overhead is given below:
Cost
Formula 6,000 8,000 10,000
Overhead costs per DLH DLHs DLHs DLHs
Supplies ....................... $0.20 $1,200 $1,600 $2,000
Indirect labor ............... 0.50 3,000 4,000 5,000
Utilities ........................ 0.05 300 400 500
Total overhead cost ..... $0.75 $4,500 $6,000 $7,500
During a recent period, the company produced 2,500 units of product using 7,600
direct labor-hours (DLHs). The standard allows 3 direct labor-hours per unit. Actual
variable overhead costs incurred were:
Supplies ............................. $1,900

Indirect labor ..................... 3,040
Utilities .............................. 570
Total overhead cost ........... $5,510
The company had originally budgeted to produce 2,600 units during the period using
7,800 direct labor-hours.
Required:
Prepare a performance report for the period showing only the spending
variances for each overhead cost category
Answer :
Lindon Company
Performance Report
Budgeted DLHs ......... 7,800
Actual DLHs ............. 7,600
Standard DLHs .......... 7,500*
Actual Budget
Cost Cost Based on Spending
Overhead Costs Formula 7,600 DLH 7,600 DLH Variance
Supplies .................... $0.20 $1,900 $1,520 $380 U
Indirect labor ............. 0.50 3,040 3,800 760 F
Utilities ..................... 0.05 570 380 190 U
Total overhead cost ... $0.75 $5,510 $5,700 $190 F
* 3 DLHs per unit × 2,500 units = 7,500 DLHs

PROBLEM 2
Layt Clock Company has developed the following flexible budget for its overhead costs.
Manufacturing overhead at Layt is applied to production on the basis of standard
machine-hours:
Machine Hours
21,600 24,000 26,400
Clocks produced ................... 18,000 20,000 22,000
Variable overhead cost ......... $127,440 $141,600 $155,760
Fixed overhead cost .............. $171,072 $171,072 $171,072
Layt was expecting to produce 22,000 clocks last year. The actual results for the year
were as follows:
Number of clocks produced .......... 21,500

Machine-hours incurred ................ 24,940
Variable overhead cost .................. $145,899
Fixed overhead cost ....................... $170,540
Required:
Compute all four manufacturing overhead variances for Layt.
ANSWER
Variable Overhead Spending Variance = (AH × AR) - (AH × SR)
= $145,899 - [($155,760/26,400) x 24,940]
= $1,247 F
Variable Overhead Efficiency Variance = (AH × SR) - (SH × SR)
= [24,940 x ($155,760/26,400)] - [21,500 × (
26,400/22,000) x ($155,760/26,400)]
= $5,074 F
Fixed Overhead Budget Variance = Actual fixed overhead cost - Budgeted fixed overhead cost
= $170,540 - $171,072
= $532F
Fixed Overhead Volume Variance = Fixed portion of the predetermined overhead rate ×
(Denominator hours – Standard hours allowed)
= $171,072 - [($171,072/26,400) x 21,500 ×
(26,400/22,000)]
= $3,888 U
PROBLEM 3
Cajun Candy Corporation manufactures giant gourmet suckers. The cost standards developed
by Cajun appear below. Manufacturing overhead at Cajun is applied to production on
the basis of standard direct labor-hours:
Standard Standard cost Standard

quantity per ounce or cost per
per sucker hour sucker
Direct materials ............................. 0.75 ounces $20.00 $15.00
Direct labor .................................... 1.2 hours $12.00 14.40

Variable overhead.......................... 1.2 hours $3.00 3.60
Fixed overhead .............................. 1.2 hours $5.00 6.00
Total standard cost per sucker ....... $39.00
The standards above were based on an expected annual volume of 8,000 suckers. The
actual results for last year were as follows:
Number of suckers produced ........................................... 8,200

Direct labor-hours incurred ............................................. 10,000
Ounces of direct materials purchased .............................. 7,900
Ounces of direct materials used in production ................ 6,070
Total cost of direct materials purchased .......................... $156,815
Total direct labor cost ...................................................... $122,800
Total variable overhead cost............................................ $28,600
Total fixed overhead cost ................................................ $47,500
Required:
Compute the following variances for Cajun.
a. Materials price variance.
b. Materials quantity variance.
c. Labor rate variance.
d. Variable overhead spending variance.
e. Variable overhead efficiency variance.
f. Fixed overhead budget variance.
ANSWER :
a. Materials price variance = $156,815 - (7,900 × $20.00) = $1,185 F

b. Materials quantity variance = (6,070 × $20.00) - (8,200 × 0.75 × $20.00) = $1,600 F
c. Labor rate variance = $122,800 - (10,000 × $12.00) = $2,800 U
d. Variable overhead spending variance = $28,600 - (10,000 × $3.00) = $1,400 F
e. Variable overhead efficiency variance = (10,000 × $3.00) - (8,200 × 1.2 × $3.00) = $480U
f. Fixed overhead budget variance = $47,500 - (8,000 × $6.00) = $500 F
PROBLEM 4
Pierce Company uses a standard cost system in which it applies manufacturing overhead to
its product on the basis of standard direct labor-hours (DLHs). Below is the standard
cost card for the product:
Direct materials, 4.5 feet at $3.80 per foot ...................... $17.10

Direct labor, 3.0 DLHs at $9.50 per DLH ....................... 28.50
Variable overhead, 3.0 DLHs at $2.00 per DLH............. 6.00
Fixed overhead, 3.0 DLHs at $8.00 per DLH ................. 24.00
$75.60
Last year, the company produced 6,000 units of product using 17,000 direct labor-
hours. The actual total fixed overhead cost for the year was $140,000 and the volume
variance was $12,000, favorable.
Required:
a. Compute the total fixed overhead cost that was originally budgeted.
b. Compute the denominator activity figure that the company used in computing
predetermined overhead rates.
Fixed overhead cost applied to work in process:

3 DLHs per unit × 6,000 units × $8 per DLH $144,000
Deduct favorable volume variance 12,000
Budgeted fixed overhead cost $132,000
Budgeted fixed overhead cost (above) $132,000

Fixed portion of the predetermined overhead rate ÷ $8 per DLH
Denominator activity level 16,500 DLHs

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Kevin Jordan / 2201743264

Supplies ............................. $1,900

* 3 DLHs per unit × 2,500 units = 7,500 DLHs

Number of clocks produced .......... 21,500

Compute all four manufacturing overhead variances for Layt.

Standard Standard cost Standard

Direct labor .................................... 1.2 hours $12.00 14.40

Number of suckers produced ........................................... 8,200

a. Materials price variance = $156,815 - (7,900 × $20.00) = $1,185 F

Direct materials, 4.5 feet at $3.80 per foot ...................... $17.10

Fixed overhead cost applied to work in process:

Budgeted fixed overhead cost (above) $132,000

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