320C08

Exercise 8-24: Overhead Variances, service sector.
Given:
Easy Meals Now (EMN) operates a home meal delivery service. It has agreements with 20 restaurants to pick up and deliver meals
to customers who phone or fax orders to EMN. EMN allocates variable and fixed overhead costs on the basis of delivery time.
EMN's owner, Steve Roberts, obtains the following information for May 2014 overhead costs:
Budgeted VOH rate (per hour of home delivery time) for May 2014
Budgeted FOH for May 2014
Budgeted number of home deliveries (EMN's output measure)
Budgeted FOH rate (per home delivery) for May 2014
Budgeted delivery time per delivery (in hours)
Budgeted FOH rate (per hour of home delivery time) for May 2014
Actual FOH for May 2014
Modified
Actual VOH for May 2014
Actual number of home deliveries
Actual delivery time (in hours)
Actual delivery time per delivery (in hours)
$1.75
$33,600
12,000
$2.80
0.70
$4.00
$39,620
$11,320
8,600
5,660
0.6581
$4.00 Budgeted FMOH rate per delivery hour

$7.00 Actual FMOH rate per delivery hour
$2.00 Actual VMOH rate per delivery hour
Overhead portion of Std. Cost Card
VOH
FOH
TOH
Delivery Hours
Cost Per
Std. Cost
Per Meal
Delivery Hr.
Per Delivery
0.70
0.70
0.70
$1.75
$4.00
$5.75
$1.23
$2.80
$4.03
Required:
1. Compute spending and efficiency variances for EMN's VOH in May 2014.
VOH
Actual Costs
$2.00
Adjusted Budget
Adjusted Budget
Applied VOH
Static Budget
AQ X AR
AQ X SR
SQA X SR
SQA X SR
BQA X SR
8,600 X .6581 X $2
8,600 X .6581 X $1.75
8,600 X .70 X $1.75
8,600 X .70 X $1.75
12,000 X .70 X $1.75
5,660 X $2
5,660 X $1.75
6,020 X $1.75
6,020 X $1.75
8.400 X $1.75
$11,320
$9,905
$10,535
$10,535
$14,700
($1,415)
$630
$0
$4,165
Unfavorable
Favorable
Always Zero
Favorable
4-way
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Operating- Income Volume

Variance
($785)
$4,165
($785)
$4,165
Unfavorable
Favorable
Flexible-budget
Sales-Volume
Variance
Variance
($785)
$4,165
($785)
Favorable
Underapplied VOH

Variance
$3,380
$3,380
$3,380
$3,380
Favorable
Static Budget Variance
2. Compute the spending variance and production-volume variance for EMN's FOH in May 2014.
FOH
Adjusted Budget
Adjusted Budget
Applied FOH
Static Budget
5,660 Hrs.
6,020 Hrs.
6,020 Hrs.
8,400 Hours
BFOH
BFOH
SQA X SR
BQA X SR
8,600 X .6581 X $7
8,600 X .70 X $4
12,000 X .70 X $4
5,660 X $7
6,020 X $4
8,400 X $4
Actual Costs 5,660

$7.00
AQ X AR
$39,620
4-way
$33,600
$33,600
$24,080
$0
Unfavorable
Always Zero
Unfavorable
Favorable
Spending
Efficiency
Production-Volume
Operating-Income Volume
Variance
Variance
Variance
($9,520)
$33,600
($6,020)
($6,020)
$9,520
Variance
$0
($6,020)
$0
Unfavorable
Always Zero
Flexible-budget
Sales-Volume
Variance
Variance
($15,540)
$9,520
($15,540)
Favorable
Underapplied FMOH
Variance
($6,020)
(Cost Portion)
($6,020)
($6,020)
($6,020)
Unfavorable
Alternative calculation of production-volume variance:

Std. quantity allowed for actual level of production
Denominator hours used to calculate FOH rate
Difference: Denominator hrs. > than allowed hrs.
FOH cost rate (per standard machine-hour)
Unfavorable production-volume variance
or
Actual production
Budgeted production
Ineffectiveness in terms of units (deliveries)
FOH rate per delivery
VOH
6,020 8,600 X .7
8,400 12,000 X .7
(2,380)
$4.00
($9,520)
8,600
12,000
(3,400)
$2.80
($9,520)
Actual Costs
Flexible Budget
Flexible Budget
Applied TMOH
AXA
AXS
SQA X S
SXS
$11,320
($1,415)
FOH
39,620
(6,020)
TOH
$50,940
$9,905
$630
33,600
$43,505
$10,535
$0
33,600
(9,520)
$44,135
$10,535
Static Budget
BQA X BP
$4,165
$14,700
24,080
9,520
33,600
$34,615
(Cost Portion)
$48,300
$34,615
3-way
($7,435)
$630
($9,520)
$13,685
Unfavorable
Favorable
Unfavorable
Favorable
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Variance
($9,520)
$13,685
($6,805)
$5.75
2-way
Unfavorable
Unfavorable
Favorable
Flexible-Budget
Production-Volume
Variance
Variance
Variance
1-way
($16,325)
$13,685
Underapplied TOH
Favorable
Variance
3. How might EMN manage its VOH costs differently from its FOH costs?
EMN best manages its FOH costs by long-term planning of capacity rather
than day-to-day decisions. This involves planning to undertake only value-added
FOH activities and then determining the appropriate level for those activities.
Most FOH costs are committed well before they are incurred.
In contrast, for VOH, a mix of long-run planning and daily monitoring of the use
of individual items is required to manage costs efficiently. EMN plans to
undertake only value-added VOH activities (a long-run focus) and then manage
the costs drivers of those activities in the most efficient way (a short-run focus).
Budgeted Industry Size

Budgeted market share
Actual Industry Size
Actual market share
24,000
0.50
21,500
0.40
Deliveries
8,600
Delivery hrs. 5,660
Actual Costs
8,600
5,660
Adjusted Budget
8,600
6,020
Adjusted Budget
8,600
6,020
Applied
10,750
7,525
Adjusted Budget
Static Budget
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Budgeted Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share
Actual input ratio
Actual input ratio
Budgeted input ratio
AVMOH rate/delivery hr.
BVMOH rate/hr.
BVMOH rate/hr.
BVMOH rate/hr.
BVMOH rate/hr.
BVMOH rate/delivery hr.
21,500
0.40
0.6581
21,500
0.40
0.6581
21,500
0.40
0.70
21,500
0.40
0.70
21,500
0.50
0.70
VOH
$2.00
$11,320
$1.75
$9,905
$1.75
$10,535
($1,415)
Spending Variance
$1.75
$10,535
$1.75
$13,169
$630
$0
$2,634
$1,531
Efficiency Variance
Production Volume
Market-share Variance
Market-size Variance
($785)
($785)
$4,165
$4,165
Flexible-Budget Variance
Sales-Volume variance
($785)
($785)
$4,165
$4,165
Underapplied VOH
Operating- Income Volume Variance
$3,380
$3,380
$3,380
$3,380
Static-Budget Variance
Deliveries
8,600
Delivery hrs. 5,660
Actual Costs
FOH
8,600
5,660
Adjusted Budget
8,600
6,020
Adjusted Budget
8,600
6,020
Applied
10,750
7,525
Adjusted Budget
Static Budget
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share
Actual input ratio
Actual input ratio
AFMOH rate/delivery hr.
BFMOH rate/hr.
BFMOH rate/hr.
BFMOH rate/hr.
BFMOH rate/hr.
BFMOH rate/delivery hr.
21,500
0.40
0.6581
$7.00
$39,620
21,500
0.40
0.6581
$5.94
$33,600
21,500
0.40
0.70
$5.58
$33,600
21,500
0.40
0.70
$4.00
$24,080
21,500
0.50
0.70
$4.00
$30,100
($6,020)
Budget Variance
$0
($9,520)
$6,020
$3,500
Efficiency Variance
Production Volume
($6,020)
($6,020)
$0
$0
Flexible-Budget Variance
($15,540)
($15,540)
Sales-Volume variance
$9,520
$9,520
Underapplied VOH
Operating- Income Volume Variance
($6,020)
($6,020)
($6,020)
($6,020)
Static-Budget Variance
12,000
8,400
Static Budget
size
Budgeted Mkt. Share
share
efficiency
BVMOH rate/delivery hr.
Price
24,000
0.50
0.70
$1.75
$14,700
ket-size Variance
12,000
8,400
Static Budget
size
Budgeted Mkt. Share
share
efficiency
BFMOH rate/delivery hr.
Price
24,000
0.50
0.70
$4.00
$33,600
ket-size Variance
Exercise 8-23: Straightforward coverage of manufacturing overhead, standard-costing system.

Given:
The Singapore division of a Canadian telecommunications company uses a standard-costing system for its
machine-paced production of telephone equipment.
Data regarding production during June are as follows:
VMOH costs incurred
FMOH costs incurred
Budgeted FMOH
Denominator level in machine-hours
BFMOH application cost rate per standard machine-hour
BVMOH application cost rate per standard machine-hour
Standard machine-hour allowed per unit of output
Budgeted units of output
Actual machine-hour used
Actual units of output
Actual machine-hours used per unit of output
$618,840
$145,790
$144,000
72,000
$2
$8
1.20
60,000
76,400
65,500
1.16641
EWIP inventory
0
$576,000
Standard
Standard
Standard Cost
Standard
Static
Total
Cost
Quantity
Per
Cost per
Budgeted
Budgeted
Level
Card
Hrs./Unit
Mach. Hrs.
Unit
Units
Std. Cost
Machine Hrs.
VMOH
FMOH
1.20
1.20
$8
$2
$9.60
$2.40
60,000
60,000
Denominator
$576,000
$144,000
72,000
72,000
Actual
Actual
Actual Cost
Actual
Actual
Actual
Actual
Cost
Quantity
Per
Cost per
Units of
Cost
Level of
Card
Hrs./Unit
Mach. Hrs.
Unit
Output
Incurred
Machine Hrs.
VMOH
FMOH
1.16641
1.16641
$8.100000
$1.908246
$9.45
$2.23
65,500
65,500
$618,840
$145,790
76,400
76,400
1. Prepare an analysis of all manufacturing overhead variances Use the 4-way analysis of variance.
VMOH
Actual Costs
AXA
76,400 X $8.10
Flex. Budget
$8.10
AX S
76,400 X $8
78,600
SQA X S
(65,500 X 1.20) X $8
Applied VMOH
78,600
SQA X S
65,500 X 1.20 X $8
Static
72,000
Budget
60,000 X 1.20 X $8
$618,840
$611,200
$628,800
$628,800
$17,600
Unfavorable
Favorable
Always Zero
Unfavorable
Spending
Efficiency
Production-Volume
Variance
Variance
4-way
Variance
$0
$576,000
($7,640)
($52,800)
Variance
$9,960
($52,800)
(Cost Portion)
$9,960
($52,800)
Favorable
Unfavorable
Flexible-budget
Sales-Volume
Variance
Variance
(Cost Portion)
$9,960
($52,800)
$9,960
Unfavorable
Overapplied VMOH
Variance
($42,840)
(Cost Portion)
($42,840)
($42,840)
($42,840)
Unfavorable
Static-Budget
Variance
FMOH
Actual Costs
BFMOH
BFMOH
Applied FMOH
Static
AXA
for
for
SQA X S
Budget
76,400 Hours
76,400
78,600 SQA
78,600
65,500 X 1.16641 X $1.908246
76,400 X $1.908246
$145,790
4-way
$144,000
78,600 Hours
72,000 Hours
65,500 X 1.20 X $2
60,000 X 1.20 X $2
78,600 X $2
$157,200
72,000 X $2
$144,000
$144,000
($1,790)
$0
$13,200
($13,200)
Unfavorable
Always Zero
Favorable
Unfavorable
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Variance
(Cost Portion)
($1,790)
$0
($1,790)
$0
Unfavorable
Always Zero
Flexible-budget
Sales-Volume
Variance
Variance
(Cost Portion)
$11,410
($13,200)
$11,410
Unfavorable
Overapplied FMOH
Variance
($1,790)
(Cost Portion)
($1,790)
($1,790)
($1,790)
Unfavorable
Static-Budget
Variance

Denominator hours used to calculate FMOH rate
Difference: SQA more than static budgeted amount
FMOH cost rate (per standard machine-hour)
Favorable production-volume variance
or
Actual units produced
Budgeted units of production
Effectiveness
FMOH rate per unit ($2 X 1.20)
Favorable production-volume variance
78,600 65,500 X 1.2

72,000 60,000 X 1.2
6,600
$2
$13,200
or
65,500
60,000
5,500
$2.40
$13,200
$157,200
144,000
$13,200
$157,200
144,000
$13,200
Actual Costs
Flexible-Budget
Flexible-Budget
Applied TMOH
Static Budget
4-way
AXA
AX S
SQA X S
SXS
BQA X BP
VMOH
$618,840
($7,640)
$611,200
$17,600
$628,800
$0
$628,800
($52,800)
FMOH
145,790
(1,790)
144,000
144,000
13,200
157,200
(13,200)
144,000
TMOH
$764,630
$786,000
(Cost Portion)
$720,000
$755,200
($9,430)
$772,800
$17,600
$13,200
($66,000)
$576,000
3-way
Unfavorable
Favorable
Favorable
Unfavorable
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Variance
2-way
$8,170
$13,200
($66,000)
Favorable
Favorable
Unfavorable
Flexible-Budget
Production-Volume
Variance
Variance
Variance
$21,370
1-way
($66,000)
Overapplied TMOH
Unfavorable
Variance
2. Prepare journal entries for MOH. Use the 4-way of analysis of variance. (Ignore explanations.)
Note: The following variances are not normally recorded in journal entries:
Operating-Income Volume Variance
Sales-Volume Variance
Static - Budget Variance
DR
a. Variable Manufacturing Overhead Control

Miscellaneous Accounts
$618,840
b. Work-in-Process Control
Variable Manufacturing Overhead Applied
$628,800
c. Variable Manufacturing Overhead Applied

Variable Manufacturing Overhead Spending Variance
Variable Mfg. Overhead Efficiency Variance
Variable Mfg. Overhead Control
$628,800
$7,640
d. Fixed Manufacturing Overhead Control

Miscellaneous Accounts
$145,790
e. Work-in-Process, Control
Fixed Manufacturing Overhead Applied
$157,200
CR
a.
$618,840
VMOH Control
618,840
618,840
$628,800
VMOH Efficiency Var.
17,600
$17,600
$618,840
$145,790
$157,200
d.
FMOH Control
145,790
145,790
f. Fixed Manufacturing Overhead Applied

Fixed Manufacturing Overhead Spending Variance
Fixed Manufacturing Production-Volume Variance
Fixed Manufacturing Overhead Control
$157,200
$1,790
3. Describe how individual VMOH and FMOH items are controlled from day to day.
VMOH:
The control of VMOH requires the identification of the cost drivers

for such items as energy, supplies, and repairs. Control often
entails monitoring nonfinancial measures that affect each cost
item, one by one. Examples are kilowatts used, quantities of
lubricants used, repair parts used, and hours used. The most
convincing way to discover why overhead performance did not
agree with a budget is to investigate possible causes, line item by
line item.
FMOH:
Individual FMOH items are not usually affected very much by dayto-day control. Instead, they are controlled periodically through
planning decisions and budgeting procedures that may sometimes
have horizons covering six months or a year (for example, mgmt.
salaries) and sometimes covering many years (for example, longterm leases and depreciation on plant and equipment).
4. Discuss possible causes of the variable MOH variances.

The VMOH spending variance is unfavorable. This means the actual VMOH rate
is higher than the budgeted variable manufacturing overhead rate. Since VMOH
consist of several different costs, this might have happen for a variety of reasons:
1. The utility rate per KWH could have been more than budgeted
2. Indirect material cost per unit could have been more than budgeted
3. Use of indirect materials could have been more than expected
4. Indirect labor wage rates could have been more than budgeted.
5. Use of indirect labor could have been more than expected.
The VMOH efficiency variance is favorable. Since the denominator activity is
f.
$13,200
$145,790
FMOH Spending Var.

1,790
machine hours, this variance results from the efficient use of manufacturing
equipment. For example, production runs could be efficiently scheduled resulting in
virtually no machines being idle. Machines might be expertly maintained resulting in
almost no work stoppages or machine breakdowns. Expert machine operators may be
available as needed for production, eliminating idle machinery.
For example -- experienced, well-trained machine operators might be able to complete machine-based
tasks faster than expected. Expertly maintained machinery might have resulted in less scrap and less idle
machine time than expected.
$576,000
Est. VMOH ?
Den. Level
72,000
00 X 1.20 X $8
$8
000 X 1.20 X $2
$576,000
b.
e.
WIP Control
628,800
157,200
c.
VMOH Applied
628,800 b.
628,800
c.
VMOH Spending Var.

7,640
f.
FMOH Applied
157,200 e.
157,200
FMOH Production-Vol. Var.
13,200 f.
Exercise 8-29: Flexible-budget Variances

Given:
Michael Roberts is a cost accountant and business analyst for Darby Design Company (DDC),
which manufactures expensive brass doorknobs. DDC uses two direct cost categories: DM and
DML. Roberts feels that MOH is most closely related to material usage. Therefore, DDC allocates
MOH to production based upon pounds of materials used.
At the beginning of 2014, DDC budgeted annual production of 410,000 doorknobs
and adopted the following standards for each doorknob:
34166.667
Units
Cost/Unit
Std. Cost
Direct materials (brass -- in pounds)
0.30
$9
$2.70
Direct manufacturing labor (in hours)
1.20
$16
$19.20
Manufacturing overhead
Variable
0.30
$4
$1.20
Fixed
0.30
$14
$4.20
Standard cost per doorknob
$27.30
Actual results for April 2014 were:
Production (doorknobs)
DM purchased (pounds)
DM used (pounds)
DML
VMOH
FMOH
32,000
12,900
9,000
29,600
$10
$129,000
21.00
$621,600
$64,900
$160,000
Required:
1. For the month of April, compute the following variances, indicating whether each is favorable
(F) or unfavorable (U).
a. DM Purchase Price Variance
b. DM Efficiency Variance
c. DML Price Variance
d. DML Efficiency Variance
e. VMOH Spending Variance
f. VMOH Efficiency Variance
g. FMOH Production-volume Variance
h. FMOH Spending Variance
DM
Actual Costs
Aqp X Ap
Aqp X Sp
12,900 X $10
$129,000
12,900 X $9
$116,100
($12,900)
Unfavorable
Purchase Price
410,000
Variance
34,166.67
a.
10,250
Actual Costs
9,600
Aqu X Ap
Aqu X Sp
SQA X SP
9,000 X $10
$90,000
9,000 X $9
$81,000
32,000 X .3 X $9
$86,400
(410,000/12)
($9,000)
$5,400
$5,850
Unfavorable
Favorable
Favorable
Usage Price
Efficiency
Sales-Volume
Variance
Variance
Variance
b.
(Cost portion)
($3,600)
($3,600)
$5,850
Unfavorable
Favorable
Flexible-budget
Sales-Volume
Variance
Variance
$2,250
$2,250
$2,250
Favorable
DML
Actual Costs
$21.00
38,400
41,000
AXA
AX S
SQA X S
29,600 X $21.00
$621,600
29,600 X $16
$473,600
32,000 X 1.20 X $16

$614,400
(410,000/12)
($148,000)
$140,800
$41,600
Unfavorable
Favorable
Favorable
Sales-Volume
Rate
Efficiency
Variance
Variance
Variance
c.
d.
(Cost Portion)
($7,200)
($7,200)
$41,600
Favorable
Unfavorable
Flexible-budget
Sales-Volume
Variance
Variance
$34,400
$34,400
$34,400
Unfavorable
VMOH
Actual Costs
$7.2111
4-way
9,000
9,600
9,600
AXA
AX S
SQA X S
9,000 X $7.2111
$64,900
9,000 X $4
$36,000
32,000 X .3 X $4
$38,400
32,000
($28,900)
$2,400
$0
Unfavorable
Favorable
Always Zero
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
e.
($26,500)
($26,500)
Unfavorable
Flexible-budget
Variance
f.
($26,500)
($26,500)
Underapplied VMOH
($23,900)
($23,900)
($23,900)
($23,900)
Unfavorable
FMOH
$17.7778
Actual Costs
10,450
9,600
AXA
BFMOH
BFMOH
32,000 X .3 X $14
10,250 X $14
9,000 X $17.7778
$160,000
4-way
9,600
$143,500
$143,500
($16,500)
$0
($9,100)
Unfavorable
Always Zero
Unfavorable
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
h.
g.
($16,500)
($16,500)
Unfavorable
Flexible-budget
Variance
($25,600)
($25,600)
Overapplied FMOH
($16,500)
($16,500)
($16,500)
($16,500)
Unfavorable
2. Can Roberts use any of the variances to help explain any of the other variances? Give
examples?
The direct materials price variance indicates that DDC paid more for brass than they had planned.
If this is because they purchased a higher quality of brass, it may explain why they used less brass
than expected (leading to a favorable material efficiency variance). In turn, since variable manufacturing
overhead is assigned based on pounds of materials used, this directly led to the favorable variable
overhead efficiency variance. The purchase of a better quality of brass may also explain why it took
less labor time to produce the doorknobs than expected (the favorable direct labor efficiency variance).
Finally, the unfavorable direct labor price variance could imply that the workers who were hired were
more experienced than expected, which could also be related to the positive direct material and direct
labor efficiency variances.
h is favorable
Budgeted
Annual Demand
Monthly demand (doorknobs)
Pounds of brass
Monthly Static Budget
BQA X BP
(410,000/12) X .3 X $9
$92,250
Static Budget
BQA X BP
(410,000/12) X 1.20 X $16
$656,000
Applied VMOH
10,250 Static Budget
SXS
BQA X BP
32,000 X .3 X $4
$38,400
(410,000/12) X .30 X $4
$41,000
$2,600
Unfavorable
roduction-Volume

Variance
$2,600
$2,600
Unfavorable
Sales-Volume
Variance
$2,600
Unfavorable
Applied FMOH
10,250
SQA X S
Static Budget
32,000 X .3 X $14
10,250 X $14
$134,400
(410,000/12) X .3 X $14
10,250 X $14
$143,500
$9,100
Unfavorable
roduction-Volume

Variance
$0
$0
Always Zero
Sales-Volume
Variance
had planned.
ed less brass
able manufacturing
able variable
ain why it took
iciency variance).
ere hired were
aterial and direct
$9,100
Favorable
Variance
Exercise 8-30
Given:
Chef Whiz manufactures premium food processors. The following is some manufacturing overhead
data for Kitchen Whiz for the year ended December 31, 2014:
Flexible
Budget
MOH
Actual
(For Achieved
Applied
Type
Costs
Output)
Amount
VMOH
$51,480
$79,950
$79,950
FMOH
$350,210
$343,980
$380,250
$460,200
Static budgeted number of output units:

Planned machine-hours required per processor manufactured
Actual number of machine hours used during 2012
The static-budgeted VMOH costs for 588 processors
Required:
Compute the following quantities:
1. Budgeted # of machine-hours planned.
Static-budgeted processors
Multiplied by budgeted machine hours per unit
Planned machine-hours
2. Budgeted FMOH costs per machine-hour.
Budgeted FMOH
Divided by planned machine-hours
Budgeted FMOH costs per machine-hour
588
3
1,170
$72,324
588
3
1,764
$343,980
1,764
$195.00
3. Budgeted VMOH costs/machine-hour

Static budgeted VMOH
Divided by planned machine-hours
Budgeted VMOH costs per machine-hour
$72,324
1,764
$41.00
4. Budgeted number of machine-hours allowed

for actual output produced
Applied VMOH
Divided by budgeted VMOH costs per machine-hour
Budgeted # of MHrs. allowed for actual production
$79,950
$41
1,950
5. Actual number of output units

Budgeted # of MHrs. allowed for actual production
Divided by the budgeted machine hours per unit
Actual number of output units

6. Actual number of machine-hours used per processor
Actual number of machine hours used during 2010 was
Divided by the actual number of output units
Actual number of machine-hours used per processor
1,950
3
650
1,170
650
1.80
Exercise 8-31 (Continuation of 8-30)

Required:
1. Prepare journal entries for variable and fixed MOH
VMOH
Actual Costs Incurred (1,170 MHrs.)
Flexible Budget (1,170 MHrs.)
Actual Input X Actual Price
Actual Input X Standard Price
650 X 1.80 X $44
650 X 1.80 X $41
1,170 X $44
1,170 X $41
$51,480
$47,970
$3,510
Unfavorable
Spending Variance
Actual Costs Incurred
FMOH
$350,210
$343,980
$6,230
Unfavorable
Budget Variance
1 Variable Manufacturing Overhead Control

Accounts Payable Control and Other Accounts
To record actual variable mfg. overhead incurred.
51,480
2 Work-in-Process Control
Variable Manufacturing Overhead Applied
To record applied VMOH.
79,950
3 Variable Manufacturing Overhead Applied

Variable Manufacturing Overhead Efficiency Variance
Variable Manufacturing Overhead Control
To record variable overhead variances.
79,950
3,510
4 Fixed Manufacturing Overhead Control

Accounts Payable Control and Other Accounts
To record actual fixed mfg. overhead incurred.
350,210
5 Work-in-Process Control
Fixed Manufacturing Overhead Applied
To record applied FMOH.
380,250
6 Fixed Manufacturing Overhead Applied
380,250
Fixed Manufacturing Overhead Budget Variance

Fixed Manufacturing Overhead Production-Volume Variance
Fixed Manufacturing Overhead Control
To record fixed overhead variances.
6,230
2. Overhead variances are written off to COGS at the end of the

fiscal year. COGS is then entered in the income statement.
Show how COGS is adjusted through journal entries.
7 Variable Manufacturing Overhead Efficiency Variance
Fixed Manufacturing Overhead Production-Volume Variance
Fixed Manufacturing Overhead Budget Variance
Cost of Goods Sold
To close the mfg. overhead variances to COGS
(no proration)
JE 4
JE 6
FMOH Control
350,210
350,210
31,980
36,270
JE 1
JE 3
JE 5
JE 6
FMOH Applied
380,250
380,250
0
VMOH Control
51,480
0
VMOH Applied
JE 2
JE 3
79,950
0
72324
Budget (1,170 MHrs.)
1,950
put X Standard Price
Applied Overhead (1,950 MHrs.)
Standard Quantity Allowed X Standard Price
650 X 3 X $41
650 X 3 X $41
1,950 X $41
1,950 X $41
0 X 1.80 X $41
$79,950
$79,950
($31,980)
$0
Favorable
Always Zero
Efficiency Variance
Production-Volume Variance
Budget (1,170 MHrs.)
Applied Overhead (1,950 MHrs.)
put X Standard Price

650 X 3 X $195
1,950 X $195
$380,250
$343,980
$0
$380,250
($36,270)
Always Zero
Favorable
Efficiency Variance
Alternative ways to calculate PVV:

51,480
79,950
31,980
51,480
350,210
380,250
Units
Actual Production
Planned Production
Difference
Budgeted FMOH Rate
$585
$585
650
588
62
$585
$36,270
36,270
350,210
Check for JE#7
6,230
3,510
58,510
$401,690
Applied TMOH
460,200
Overapplied
VMOH Control
51,480
Actual TMOH
JE 3
JE 7
VMOH Spending Var.

3,510
3,510
0
VMOH Applied
79,950
JE 3
JE 7
VMOH Efficiency Var.

31,980
31,980
0
($58,510) Credit to COGS
JE 6
JE 7
FMOH Budget Variance

6,230
6,230
0
FMOH Volume Variance

JE 6
36,270
JE 7
36,270
0
verhead (1,950 MHrs.)
Static Budget (1,764 Mhrs.)
ty Allowed X Standard Price
Budgeted Quantity Allowed X Standard Price

588 X 3 X $41
1,764 X $41
$72,324
$7,626
$72,324
Unfavorable
Variance
verhead (1,950 MHrs.)
Static Budget (1,764 Mhrs.)
ty Allowed X Standard Price
Budgeted Quantity Allowed X Standard Price

588 X 3 X $195
1,764 X $195
$343,980
$343,980
$36,270
Unfavorable
Variance
Allowed
Mhrs.
1,950
1,764
186
$195
$36,270
$195
Exercise 8-37:
Activity-based costing, batch-level variance analysis
Given:
Rae Stevens Publishing Company specializes in printing specialty textbooks for a small
but profitable college market. Due to the high setup costs for each batch printed, Rae
holds the book requests until demand for a book is approximately 520. At that point Rae
will schedule the setup and production of the book. For rush orders, Rae will produce
smaller batches for an additional charge of $987 per setup.
2014 Data
Number of books produced
Average # of books per setup (Batch size)
Static-Budget
Amounts
197,600
520
Actual
Amounts
225,680
496
7.0
7.5
380.00
Budgeted setups
455.00 Actual setups
Hours to set up printers

Budgeted setup hrs
2,660.00
3,412.500 setup hours
Direct variable cost per setup-hour

Total fixed setup overhead costs
BFOH cost/setup-hour
$130
$53,200
$20.000
$70
$68,000
$19.9267 AFOH cost/setup-hour
Required:
1. What is the static budget number of setups?
Number of books expected to be produced
Expected average # of books per setup
Static budget number of setups
197,600
520
380
2. What is the flexible (adjusted) budget number of setups?

Expected average # of books per setup
Adjusted budget number of setups (number of setups allowed)
225,680
520
434
3. What is the actual number of setups?

Actual average # of books per setup
Actual number of setups
225,680
496
455
4. Assuming fixed setup overhead costs are allocated using set-up hours, what is the
predetermined fixed setup overhead allocation rate?
Budgeted fixed setup overhead costs
Static budget number of setups
$53,200
380
7.0
Budgeted hours to set up printers
Predetermined fixed setup overhead allocation rate
2,660
$20
5. Does Rae's charge of $987 cover the budgeted direct variable cost of an order?
Yes
VOH
$130
7.0
$910

Budgeted variable costs per special setup
Does Rae's charge of $987 cover the budgeted total cost of an order?
No
Budgeted variable costs per special setup
Budgeted total cost of an order
$910
$20.000
7.0
$140
$1,050
The special setup has an estimated total overhead cost of $1,050. Rae's charge is only $987
for a special setup.
6. For direct variable setup costs, compute the efficiency and spending variances.
Given:
2009 Data
Average # of books per setup (Batch size)
Budgeted setups
Budgeted setup hrs
Actual
Amounts
225,680
496
7.0
7.5
380.00
Hours to set up printers

Total fixed setup overhead costs
Static-Budget
Amounts
197,600
520
455.00 Actual setups
2,660.00
$130
$53,200
$20.000
3,412.50 setup hours

$70
$68,000
$19.9267 AFOH cost/setup-hour
Variable direct costs

Flexible Budget
(225,680/496) X 7.5 X $70

455 X 7.5 X $70
3,412.5 X $70
$238,875
(225,680/496) X 7.5 X $130

455 X 7.5 X $130
3,412.5 X $130
$443,625
($204,750)
Favorable
Spending Variance
Standard Quantity Allowed X
(225,680
434 X
$48,685
Unfavorable
Efficiency Variance
7. For fixed setup overhead costs, compute the spending and the production-volume variances.
Flexible Budget
Actual Input Level (3,412.5 hours)
(225,680/496) X 7.5 X $19.9267

455 X 7.5 X $19.9267
3,412.5 X $19.9267
$68,000
FMOH
$68,000
$14,800
Unfavorable
Standard Quantity Allowed Le
$53,200
$0
Always Zero
Budget Variance
Efficiency Variance
The production-volume variance of $7,560 F might be better understood by looking at alternative ways to calculate
1.
P V V = is a measure of the amount of over/under costing resulting from over/under application of FMOH caused solely
by virtue of a change in the level of production from the originally budgeted production level.
PVV = (197,600 - 225,680)/520 X 7.0 X $20 = (28,080/520) X 7.0 X $20 = 54 X 7.0 X $20 = 378 X $20 = $7,560 Favorable
Therefore, the PVV is caused by the increase in production volume of 28,080 books which caused FOH to be
overapplied by $7,560. The 54 extra batches caused the standard hours allowed to increase by 378 hours
(54 X 7.0) and since FOH is applied on standard hours allowed, then FOH is overapplied by $7,560 (378 X $20).
2.
P V V = Applied FMOH - BFMOH = ($60,760 - $53,200) =
$7,560
3.
P V V = BFMOH rate per unit X (Actual Units Produced - Static Budget Units) =
Favorable
P V V =($53,200/197,600) X (225,680 - 197,600) = $.26923 X 28,080 =

$0.26923
28,080.0
P V V = $.26923 X 28,080 =
4.
$7,560
Favorable
P V V = Actual Production X [(FMOH Rate based on Static Budget Volume) - (FMOH Rate based on Flexible Budget Volume)]
P V V = 225,680 X [($53,200/197,600) - ($53,200/225,680)]
$0.26923
P V V = 225,680 X ($.26923 - $.23573)
$0.23573
P V V = 225,680 X $.03350 =
$7,560
Favorable
$0.03350
8. What qualitative factors should the publishing company consider before accepting or rejecting
a special offer?
Rejecting an order may have implications for future orders -- professors may be reluctant to order books
from this publisher again if orders are rejected.
Rae should consider past history with the customer and consider potential for future business
with the special order customer.
If the book is relatively new, Rae might consider running a full batch and holding the extra books
for future sales to other potential customers. Note: inventory carrying costs and obsolesce risk should
be considered before producing for inventory.
If the special order comes at heavy volume times, Rae should look at the opportunity cost of
filling the order. Will accepting the order interfere with or delay the printing of regular customers' orders?
Actual setups
setup hours
Actual setups
setup hours
Flexible Budget
Traced & Applied Variable Costs
(225,680/520) X 7.0 X $130

434 X 7.0 X $130
3,038 X $130
$394,940
(225,680/520) X 7.0 X $130

434 X 7.0 X $130
3,038 X $130
$394,940
$0
Always Zero
$49,140
Unfavorable
(cost portion)
Flexible Budget
Applied Overhead
Standard Quantity Allowed Level (3,038 hours)
$53,200
(225,680/520) X 7.0 X $20

434 X 7.0 X $20
3,038 X $20
$60,760
($7,560)
Favorable
(197,600
380 X
(197,600
$7,560
Unfavorable
native ways to calculate it:
MOH caused solely
7,560 Favorable
exible Budget Volume)]
(cost portion)

(cost portion)
Static Budget
(2,660 hours)
(197,600/520) X 7.0 X $130

380 X 7.0 X $130
2,660 X $130
$345,800
Static Budget
(2,660 hours)
(197,600/520) X 7.0 X $20

380 X 7.0 X $20
2,660 X $20
$53,200
Exercise 8-26:
Production-Volume Variance and Sales -Volume Variance
Given:
Marissa Designs, Inc., makes makes jewelry in the shape of geometric patterns. Each piece is
handmade and takes an average of 1.5 hours to produce because of the intricate design and
scrollwork. Marissa uses direct labor hours to allocate the overhead cost to production.
Fixed overhead costs, including rent, depreciation, supervisory salaries and other production
expenses, are budgeted at $10,800 per month. These costs are incurred for a facility large
enough to produce 1,200 pieces of jewelry a month (capacity).
During the month of February, Marissa produced 720 pieces of jewelry and actual fixed costs
were $11,400.
Required:
1. Calculate the fixed overhead spending variance and indicate if it is favorable (F) or unfavorable (U).
2. If Marissa used DLHs available at capacity to calculate the budgeted fixed overhead rate, what is the
production-volume variance? Indicate whether it is favorable or unfavorable.
Actual Costs
BFMOH
BFMOH
Applied FMOH
AXA
for
for
SQA X S
Actual (?)
Actual (?)
1,080
1,080
Hours
Hours
Hours
Hours
720 X ? X $?
720 X 1.5 X $6
720 X ? X $?
1,080 X $6
$11,400
$10,800
$10,800
1,200
$6,480
$600
$0
$4,320
($4,320)
FMOH
Unfavorable
Always Zero
Unfavorable
Favorable
4-way
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Variance
(Q2)
(Cost Portion)
(Q1)
$600
$0
$600
$0
Unfavorable
Always Zero
Flexible-budget
Sales-Volume
Variance
Variance
(Cost Portion)
$4,920
($4,320)
$4,920
Favorable
Underapplied FMOH
Variance
$600
$600
$600
$600
Unfavorable
Static-Budget
Variance
(Cost Portion)

Denominator hours used to calculate FMOH rate
Difference: SQA less than static budgeted amount
FMOH cost rate (per standard machine-hour)
or
Actual units produced
Budgeted units of production
Ineffectiveness
FMOH rate per unit ($6 X 1.5)
1,080
1,800
(720)
$6
$4,320
720
1,200
(480)
$9
$4,320
720 X 1.5
1,200 X 1.5
1080
1800
$6 X 1.5
3. An unfavorable production-volume variance is a measure of the under-allocation of fixed overhead

cost caused by production levels at less than capacity. It therefore could be interpreted as the
economic cost of unused capacity. Why would Marissa be willing to incur this cost? Your answer
should separately consider the following two unrelated factors:
a. Demand could vary from month to month while available capacity remains constant.
b. Marissa would not want to produce at capacity unless it could sell all the units produced. What
does Marissa need to do to raise demand and what effect would this have on profit?
An unfavorable production-volume variance measures the cost of unused capacity. Production at capacity
would result in a P-V variance of -0- since the fixed overhead rate is based upon expected hours at capacity
production.
However, the existence of an unfavorable P-V variance does not necessarily imply that management is doing
a poor job or incurring unnecessary costs.
Regarding "a." above: For most products, demand varies from month to month while commitment to the
factors that determine capacity, e.g. size of workshop or supervisory staff, tends to remain relatively
constant. If a company wants to meet demand in a high demand months, it will have excess capacity in low
demand months. In addition, forecasts of future demand contain uncertainty due to unknown future factors.
Having some excess capacity would allow a company to handle normal (non-peak) demand as well as
provide some slack to deal with unpredictable demand surges.
Regarding "b." above: Basic economics provides a demand curve that shows a tradeoff between price
charged and quantity demanded. Potentially, Dawn could have a lower net revenue if they produce at
capacity and sell at a lower price than if they sell at a higher price at some level below capacity.
In addition, the unfavorable P-V variance may not represent a feasible cost savings associated with lower
capacity. Even if Dawn could shift to lower fixed costs by lowering capacity, the fixed cost may behave as
a step function. If so, fixed costs would decrease in fixed amounts associated with a range of production
capacity, not a specific production volume. The P-V variance would only accurately identify potential cost
savings if the fixed cost function is continuous, not discrete.
4. Marissa's budgeted variable cost per unit is $25 and it expects to sell her jewelry for $55 a piece.
Compute the total sales-volume variance and reconcile it with the production-volume variance
calculated in requirement #2. What does each concept measure?
Acctg. Records
Flexible
Applied VMOH
Budget
Applied FMOH
SQA X S
Actual Costs
ALHs ??
SQA X S
AXA
AX S
720 units
Sales
$0
$39,600
$26,400
18,000
$0
18,000
($12,000)
$21,600
$0
$21,600
$14,400
10,800
$4,320
6,480
($4,320)
$10,800
$4,320
$15,120
$10,080
Var. Costs
C/M
Fixed Costs
11,400
Operating Income
$600
10,800
Spending
720 units
$39,600
(1)
$4,320
(2)
$4,320
$10,080
Unfavorable-reduced OI
Production-Volume
Variance
Variance
U - underapplied FMOH
$4,920
(Total)
(Total)
$14,400
$14,400
$14,400
$14,400
(Total)
The total sales-volume variance represents the difference between the static-budget OI (3) and the flexible-budget OI (1)
The total sales-volume variance captures the fact that when Dawn sells 720 units instead of the static budgeted 1,200 units
only the revenue and the variable costs are affected. Fixed costs remain unchanged.
Therefore:
Total Sales Volume Variance = Budgeted CM X (Actual Units Sold - Static Budget Units)
S V V = ($55-$25) X (720 - 1,200) = $30 X (- 480) =
$14,400
Unfavorable
S V V = is a measure of the change in TCM resulting solely by virtue of a change in the level of sales. All costs and
prices are held constant at budgeted values.
(1) The total production-volume variance captures only the portion of the budgeted fixed overhead expected to be
unabsorbed because of the 480-unit shortfall. It represents the difference between the flexible-budget and the
operating income based on the budgeted profit per unit,
$10,800 Same as above: (1)
Flexible budget operating income

Calculation of budgeted profit per unit
consistent with the static budget
Budgeted SP
$55
Budgeted unit VC
$25
Budgeted unit FC
34
Budgeted unit profit
$21
Actual volume
720
OI based on budgeted profit per unit

Unfavorable Product-Volume Variance
$15,120 Same as above: (2)

$4,320 (Less production)
(2) P V V = is a measure of the amount of over/under costing resulting from over/under application of FMOH caused
solely by virtue of a change in the level of production from the originally budgeted production level.
P V V = BFMOH - Applied FMOH = $10,800 - ($9 x 720) = $10,800 - $6,480 =
$4,320 underapplied FMOH
(3) P V V = FMOH rate per unit X (Actual Units Produced - Static Budget Units)
P V V = $9 X (720 - 1,200)
P V V = $9 X (-480) =
$4,320
Unfavorable (less production)
(4) P V V = Actual Production X [(FMOH Rate based on Static Budget Volume) - (FMOH Rate based on Flexible Budget Volume)]
P V V = 720 X [($10,800/1,200) - ($10,800/720)]
P V V = 720 X [($9) - ($15)]
P V V = 720 X [-$6] =
$4,320
Unfavorable
The total operating-income volume variance represents the difference between the operating
income based on the budgeted profit per unit (2) and the static-budget operating income (3).
$10,080
Operating-income Volume Variance = S V V - P V V = (-$14,400) - (-$4,320) =
$10,080
Applied Column
Summary
Oper. Income
Adjusted
Based on
Flexible
Budgeted
Static
Budget
Profit/Unit
Budget
Sales/Production Level
720
720
1,200
Operating Income
$10,800
$15,120
$4,320
$25,200
$10,080
Unfavorable
Unfavorable
Production-Volume
Variance
Variance
$14,400
Unfavorable
Sales-Volume
Variance
vorable (U).
e, what is the
Static
Budget
1,800
Hours
1,200 X 1.5 X $6
1,800 X $6
$10,800
ating-Income Volume
(Cost Portion)
ating-Income Volume
(Cost Portion)
1800
d overhead
uced. What
n at capacity
urs at capacity
ement is doing
mmitment to the
ss capacity in low
wn future factors.
d as well as
between price
Static
Budget
1,200 Units
$66,000
Unfav. -- lost sales
30,000
Fav. -- saved costs
$36,000
10,800
$25,200
Unfav. -- lost CM
Fav. -- saved costs (?)
Unfav. -- lost OI
(3)
avorable-reduced OI
ating-Income Volume
$14,400
le-budget OI (1).
dgeted 1,200 units

$14,400
480
(less production)
le Budget Volume)]
$10,080
unfavorable.
Actual Costs
Flex. Budget
AXA
AX S
DM
DM Price Variance
DM Usage Variance
DM Flexible Budget Variance
DM Static Budget Variance
Actual Costs
Flex. Budget
AXA
AX S
DL
DML Rate Variance
DML Efficiency Variance

DML Flexible Budget Variance
DML Static Budget Variance
Actual Costs
Flex. Budget
AXA
AX S
VMOH
VMOH Spending
VMOH Efficiency Variance
VMOH Flexible Budget Variance

4-Way
Under/Over Applied VMOH
VMOH Static Budget Varia
FMOH
4-Way
Actual Costs
Flex. Budget
AXA
AX S
FMOH Spending or budget
Always Zero
FMOH Efficiency Variance
FMOH Flexible Budget Variance

Under/Over Applied FMOH
FMOH Static Budget Varia
Actual Costs
Flex. Budget
AXA
AX S
TMOH
3-Way
TMOH Spending or budget
TMOH Efficiency Variance
TMOH Flexible Budget Variance

Under/Over Applied TMOH
TMOH Static Budget Varia

Actual Costs
Flex. Budget
AXA
AX S
TMOH
2-Way
TMOH Spending or Budget

Actual Costs
Flex. Budget
AXA
AX S
TMOH
1-Way
TMOH Spending or budget

VMOH
Actual Costs
Adjusted Budget
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual input ratio
Actual input ratio
AVMOH rate/ input unit
BVMOH rate/ input unit
VMOH Spending
VMOH Spending

Under/Over Applied VMOH
VMOH Static Budget Varia
FMOH
Actual Costs
Adjusted Budget
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual input ratio
Actual input ratio
AFMOH rate/ input unit
BFMOH rate/ input unit
Always Zero
Always Zero
FMOH Spending or Budget

FMOH Spending or Budget

Under/Over Applied FMOH
FMOH Static Budget Varia
DM & DL
Actual Costs
Adjusted Budget
Adjusted Budget
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual input ratio
Actual input ratio
Actual input ratio
Actual Mix
Actual Mix
Budgeted Mix
Actual Cost
Budgeted Cost
Budgeted Cost
Price (DM) or Rate (DL) Variance

Price (DM) or Rate (DL) Variance
Mix Variance
Yield Variance
Efficiency Variance
Flexible Budget Variance
Flex. Budget
Static Budget
SQA X S
BQA X BP
e Variance
DM Sales-Volume Variance
DM Sales-Volume Variance
DM Static Budget Variance
Flex. Budget
Static Budget
SQA X S
BQA X BP
ncy Variance
DML Sales-Volume Variance

DML Sales-Volume Variance
DML Static Budget Variance
Flex. Budget
Applied VMOH
Static Budget
SQA X S
SQA X S
BQA X BP
ficiency Variance
Always Zero
VMOH Production-Volume Variance
VMOH Operating-Income Vol. Variance
VMOH Sales-Volume Variance
Applied VMOH
VMOH Static Budget Variance
iciency Variance
Applied FMOH
Flex. Budget
Applied FMOH
Static Budget
SQA X S
SQA X S
BQA X BP
FMOH Production-Volume Variance
FMOH Operating-Income Vol. Variance

Always Zero
FMOH Sales-Volume Variance
FMOH Static Budget Variance
Flex. Budget
Applied TMOH
Static Budget
SQA X S
SQA X S
BQA X BP
ency Variance
TMOH Production-Volume Variance
TMOH Operating-Income Vol. Variance
TMOH Sales-Volume Variance
Applied TMOH
TMOH Static Budget Variance

Flex. Budget
Applied TMOH
Static Budget
SQA X S
SQA X S
BQA X BP
ency Variance
Applied TMOH
ency Variance
Flex. Budget
Applied TMOH
Static Budget
SQA X S
SQA X S
BQA X BP
Applied TMOH
Adjusted Budget
Assigned (Applied)
Adjusted Budget
Static Budget
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share

BVMOH rate/input unit
ficiency Variance
Always Zero
ficiency Variance
VMOH Sales-Volume Variance
Applied VMOH
VMOH Static Budget Variance
Adjusted Budget
Assigned (Applied)
Adjusted Budget
Static Budget
Actual Market Size
Actual Market Size
Actual Market Size

Budgeted Mkt. Share
Actual Market Share
Actual Market Share
Budgeted Mkt. Share
BFMOH rate/input unit
iciency Variance
iciency Variance

Always Zero
FMOH Sales-Volume Variance
Applied FMOH
FMOH Static Budget Variance
Adjusted Budget
Assigned (Traced)
Adjusted Budget
Static Budget
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share
Budgeted Mix
Budgeted Mix
Budgeted Mix
Budgeted Mix
Budgeted Cost
Budgeted Cost
Budgeted Cost
Budgeted Cost
Always Zero
Yield Variance
cy Variance
Always Zero
Operating-Income Vol. Variance
Static Budget
BQA X BP
Static Budget
BQA X BP
Static Budget
BQA X BP
Static Budget
BQA X BP
Static Budget
BQA X BP
Static Budget
BQA X BP
Static Budget
BQA X BP
Static Budget
size
Budgeted Mkt. Share
share
efficiency
BVMOH rate/input unit
price
Static Budget
size
Budgeted Mkt. Share
share
efficiency
BFMOH rate/input unit
price
Static Budget
size
Budgeted Mkt. Share
share
yield
Budgeted Mix
mix
Budgeted Cost
price
Exercise 8-35
Given:
Morano Company prepared its budgeted production and sales at its maximum capacity of
20,000 units for 2006. Other data for 2006 follows:
Budgeted Sales and Production
Actual Sales and Production
Beginning Inventories
Ending Inventories
Budgeted FMOH
Budgeted selling price
Budgeted variable cost per unit
20,000 (capacity)
18,000
0
0
$500,000
$100
$40
Required:
1. Calculate the static-budget operating income (A), the flexible-budget operating income (B), and the
operating income based on the budgeted profit per unit (C).
(B)
(C)
Flexible
Operating
Budget
Profit Based
Volume (in units sold)

Budgeted CM/unit
Total Contribution
Budgeted FOH
OI based on the actual volume & budgeted volume
Budgeted profit per unit
Operating income based on budgeted profit per unit
$100
40
$60
Based on
Actual Sales
on Budgeted
Profit/Unit
18,000
18,000
60
$1,080,000
500,000
$580,000
35
$630,000
Alternative calculation of budgeted profit per unit:

Budgeted FMOH
Budgeted Sales and Production (capacity)
Budgeted FMOH per unit of capacity
Budgeted total cost per unit of capacity
Budgeted profit per unit
$100
$500,000
20,000
$25
40
65
$35
2. Compute the sales-volume variance, the production-volume, and the operatingincome volume variance. What do each of these variances measure?
Operating Income
18,000
Flexible
Budget
$580,000
20,000
Static
Budget
$700,000
Difference
($120,000)
Unfavorable
(Oper. Income)
Sales Volume Variance = Budgeted CM X (Actual Units Sold - Static Budget Units)
S V V = $60 X (18,000 - 20,000)
S V V = $60 X (-2,000) =
SVV=
($120,000) U (less sales)
S V V = is a measure of the change in TCM resulting solely by virtue of a
change in the level of sales. (All costs and prices are held constant
at budgeted values).
Fixed overhead
Operating Income
Applied
FOH
$450,000
$450,000
Static
Budget
$500,000
Oper. Income
Oper. Income
18,000
Flexible
Budget
$580,000
Difference
($50,000)
(Cost)
Unfavorable
Based on
Budgeted
Profit/Unit
$630,000
Difference
($50,000)
(Oper. Income)
Unfavorable
Production-Volume Variance = FMOH rate X (Actual Units Produced - Static Budget Units)
FMOH Application rate = $500,000/20,000 = $25
P V V = $25 X (18,000 - 20,000)
P V V = $25 X (-2,000) =
PVV=
($50,000) Unfavorable (less production)
P V V = Actual Production X [(FMOH Rate based on Static Budget Volume) - (FMOH Rate based on Flexible Budget Volume)]
P V V = 18,000 X [($500,000/20,000) - ($500,000/18,000)]

P V V = 18,000 X [($25) - ($27.77777777778)]
P V V = 18,000 X [-$2.77777777778]
PVV=
($50,000) Unfavorable (less production)
P V V = is a measure of the amount of over/under costing resulting from
over/under application of FMOH caused solely by virtue of a change
in the level of production from the originally budgeted production level.
Oper. Income
Based on
Operating-income Vol. Variance
Budgeted
Profit/Unit
$630,000
Static
Budget
$700,000
Difference
($70,000)
Unfavorable
Operating-income Volume Variance = S V V - P V V

O V V = (-$120,000) - (-$50,000) =
OVV=
($70,000) Unfavorable
Oper. Income
Sales/Production Level
Operating Income
Adjusted
Flexible
Budget
18,000
$580,000
Based on
Budgeted
Profit/Unit
18,000
$630,000
($50,000)
Unfavorable
Production-Volume
Variance
Static
Budget
20,000
$700,000
($70,000)
Unfavorable
Variance
($120,000)
Unfavorable
Sales-Volume
Variance
ncome (B), and the

(A)
Static
Budget
Based on
Capacity
20,000
60
$1,200,000
500,000
$700,000
lexible Budget Volume)]
oduction level.
Exercise 8-28
Given:
The Monthly Herald budgets to produce 300,000 copies of its monthly newspaper (the output unit) for August 2008. It is budgeted to have
50 print pages per paper. Actual production was 320,000 copies with 17,280,000 print pages run. Each paper was only 50 print pages, but
quality problems with paper led to many pages being unusable.
Variable costs are direct materials, direct labor, and variable indirect costs. Variable and fixed indirect costs are allocated to each copy on
the bases of good print pages. The driver for all variable costs is the number of pages.
Data pertaining to August 2008:
Production Copies
Pages per copy
Print pages run
Direct materials
DM cost per page
Pages produced per DL hour
Direct labor costs
Direct labor hours
Direct labor costs per hour
Variable indirect costs
VOH rate/print page
Fixed indirect costs
FOH rate/print page
Static
Budget
300,000
50
15,000,000
$180,000
$0.012
10,000
$45,000
1,500
$30
$60,000
$0.0040
$90,000
$0.0060
Actual
320,000
50
17,280,000
$224,640
$0.013
10,000 (added data)
$50,112 (added data)
1,728
$29
$63,936
$0.0037
$97,000
$0.0056
Required:
1. Prepare a comprehensive set of variances for the two direct-cost items and the two indirect-cost items for The Monthly Herald. (Direct
materials price and usage variances, direct-labor rate and efficiency variances, variable overhead spending and efficiency variances,
and fixed budget and production-volume variances. Use the post method. Show how you got all of your post values.
16,000,000
Flexible Budget
Flexible Budget
Static Budget
17,280,000 X $.013
17,280,000 X $.012
(320,000 X 50) X $.012

16,000,000 X $.012
$192,000
(300,000 X 50) X $.012

15,000,000 X $.012
$180,000
DM
$224,640
$207,360
$17,280
Unfavorable
Price Variance
$15,360
Unfavorable
Usage Variance
1,600
$12,000
Unfavorable
Sales Volume Variance
1,500
Flexible Budget
Flexible Budget
1,728 X $29
1,728 X $30
(320,000 X 50)/10,000 X $30

1,600 X $30
$48,000
DL
$50,112
$51,840
($1,728)
Favorable
Rate Variance
$3,840
Unfavorable
Efficiency Variance
16,000,000
Static Budget
(300,000 X 50)/10,000
1,500 X $30
$45,000
$3,000
Unfavorable
Sales Volume Variance
Flexible Budget
Flexible Budget
Applied Overhead
17,280,000 X $.0037
17,280,000 X $.0040
(320,000 X 50) X $.0040

16,000,000 X $.0040
$64,000
(320,000 X 50) X $.0040

16,000,000 X $.0040
$64,000
VMOH
$63,936
$69,120
($5,184)
Favorable
Spending Variance
$5,120
Unfavorable
Efficiency Variance
$0
Always Zero
Flexible Budget
Flexible Budget
Applied Overhead
$90,000
(320,000 X 50) X $.0060

16,000,000 X $.0060
$96,000
FMOH
$97,000
$90,000
$7,000
Unfavorable
Budget Variance
Summary of Variances:
Direct Materials
Price
Usage
Direct Labor
Rate
Efficiency
Variable Mfg. Overhead
Spending
Efficiency
Fixed Mfg. Overhead
Budget
Production-Volume
$17,280 U
$15,360 U
($1,728) F
$3,840 U
($5,184) F
$5,120 U
$7,000 U
($6,000) F
2. Explain the cause of the unfavorable variable overhead efficiency variance.

The VMOH efficiency variance results from using 1,280,000 extra pages than allowed.
Note the extra use of direct materials causes the VMOH efficiency variance to be unfavorable.
This result is because the allocation base is good print pages.
$0
Always Zero
Efficiency Variance
($6,000)
Favorable
uantity Allowed X Standard Price
00,000 X 50) X $.012

15,000,000 X $.012
000 X 50)/10,000 X $30
Applied Overhead
Static Budget
0,000 X 50) X $.0040

6,000,000 X $.0040
Budgeted Quantity Allowed X Budgeted Price
(300,000 X 50) X $.0040

15,000,000 X $.0040
$60,000
$4,000
Unfavorable
Operating-Income Variance
Applied Overhead
Static Budget
Budgeted Quantity Allowed X Budgeted Price
0,000 X 50) X $.0060

6,000,000 X $.0060
$90,000
$6,000
Unfavorable
Operating-Income Variance
Exercise 8-37
Given:
Asma Surgical Instruments, Inc., makes a special line of forceps, SFA, in batches.
Asma randomly selects forceps from each SFA batch for quality-testing purposes.
Quality testing costs are batch-level costs.
A separate quality-testing section is responsible for SFA quality testing.
Quality testing costs consist of some variable and some fixed costs in relation to
quality-testing hours.
2007 Data
Units of SFA produced and sold
Batch size (number of units/batch)
Testing-hours per batch
VOH cost per testing-hour
Total fixed testing overhead costs
FOH cost per testing-hour
Static-Budget
Amounts
21,000
500
5.5
$40
$28,875
$125
Actual
Amounts
22,000
550
5.4
$42
$27,216
$126
40
216
$126
Required:
1. For variable testing overhead costs, compute the efficiency and spending variances.
Flexible Budget
Flexible Budget
(22,000/550) X 5.4 X $42

40 X 5.4 X $42
216 X $42
$9,072
VMOH
$432
Unfavorable
Spending Variance
(22,000/550) X 5.4 X $40

40 X 5.4 X $40
216 X $40
$8,640
(22,000/500) X 5.5 X
44 X 5.5 X $40
242 X $40
$9,680
($1,040)
Favorable
Efficiency Variance
The unfavorable spending variance is due to the actual VOH cost per testing-hour increasing from the budgeted
hour.
The favorable efficiency variance is due to the actual output of 22,000 units (1) requiring fewer batches, 40
batch taking less time, 5.4 hours, than the budgeted time of 5.5 hours. Thus, 216 testing hours were used when 242 stand
2. For fixed testing overhead costs, compute the spending and the production-volume variances.
Flexible Budget
Flexible Budget
Actual Input Level (216 hours)
Standard Quantity Allowed Level (242 hours)
(22,000/550) X 5.4 X $126

40 X 5.4 X $126
FMOH
216 X $126
$27,216
($1,659)
Favorable
Budget Variance
$28,875
$28,875
$0
Always Zero
Efficiency Variance
The fixed testing overhead cost budget variance is $1,659 F because the amount of actual costs ($27,216) was lower tha
The production-volume variance of $1,375 F can be understood by looking at an alternative way to calculate it:
PVV =
(22,000 - 21,000)/500 X 5.5 X $125 = 1,000/500 X5.5 X $125 = 2 X 5.5 X $125 = 11 X $125 = $1,
$1,375
Therefore, the PVV is caused by the increase in production volume of 1,000 units which caused FOH to be overa
The 2 extra batches caused the standard hours allowed to increase by 11 hours (2 X 5.5) and since FOH is appli
hours allowed, then FOH is overapplied by $1,375 (11 X $125)
Flexible Budget
Applied Overhead
ntity Allowed X Standard Price
00/500) X 5.5 X $40

44 X 5.5 X $40
Static Budget
(231 hours)
(22,000/500) X 5.5 X $40

44 X 5.5 X $40
242 X $40
$9,680
$0
Always Zero
(21,000/500) X 5.5 X
42 X 5.5 X $40
231 X $40
$9,240
$440
Unfavorable
(cost portion)
rom the budgeted $40 per hour to the actual rate of $42 per
batches, 40, than the budgeted amount of 44 and (2) each

were used when 242 standard testing hours were allowed.
Flexible Budget
Applied Overhead
tity Allowed Level (242 hours)
Static Budget
(231 hours)
(22,000/500) X 5.5 X $125

44 X 5.5 X $125
242 X $125
$30,250
(21,000/500) X 5.5 X $125

42 X 5.5 X $125
231 X $125
$28,875
($1,375)
Favorable
sts ($27,216) was lower than the budgeted amount ($28,875).
$1,375
Unfavorable
(cost portion)
way to calculate it:

X $125 = 11 X $125 = $1,375
ch caused FOH to be overapplied by $1,375.

5.5) and since FOH is applied based on standard
0/500) X 5.5 X $40

2 X 5.5 X $40
0/500) X 5.5 X $125

2 X 5.5 X $125
Examination Question Covering Chapter 7 & 8

Given:
David James is a cost accountant and business analyst for Apple & Apple Company (AAC). AAC manufactures expensive glass knick-knack
its costs as follows: two direct cost categories -- direct material (DM) and direct manufacturing labor (DML) and one indirect cost category -overhead (MOH). David feels that MOH is most closely related to glass usage and allocates manufacturing overhead (MOH) to production b
glass usage. 2009 production was set at 12,000 units per month or 124,000 for the year. All units produced are expected to be immediately
price of $200.
The following production standards have been established for each knick-knack expected to be produced in 2009:
Budgeted amounts for January, 2009 were:

Production & Sales (knick-knacks)
Direct materials (glass -- in pounds)

Direct manufacturing labor (in hours)
Manufacturing overhead
Variable
Fixed
Standard cost per knick-knack
Contribution margin
Actual results were:
Production & Sales (knick-knacks)
DM purchased (pounds)
DM used (pounds)
DML
VMOH
Units
Cost/Unit
12,000
$200.00
Input Units Cost/Input Unit

1.50
$15
2.00
$30
1.50
1.50
Units
SP/Unit
$6
$10
SP/Unit
Std. Cost
$22.50
$60.00
$9.00
$15.00
$106.50
$108.50
Sales
12,500
$195.00
$2,437,500.00
Units
20,000
17,880
27,500
Cost/Unit
$14.75
Actual Cost
$295,000.00
$31.00
$852,500.00
$109,962.00
FMOH
Total costs incurred
$178,000.00
$1,435,462.00
Required: For the month of January, 2009, compute the following cost variances, indicating whether each is favorable (F) or unfavo
Use the post method. Detail your calculations using the diagrams below and the reference numbers below.
b. DM Usage Price Variance
c. DM Efficiency Variance
d. DM Sales-Volume Variance
e. DM Flexible-budget Variance
f. DM Static Budget Variance
g. DML Rate Variance
h. DML Efficiency Variance
i. DML Sales-Volume Variance
j. DML Flexible-budget Variance
k. DML Static-budget Variance
l. VMOH Spending Variance
m. VMOH Efficiency Variance
n. VMOH Operating-Income Variance
o. VMOH Flexible-budget Variance
p. VMOH Sales-Volume Variance
q. VMOH Under/Over Applied Amount
r. VMOH Static-budget Variance
s. FMOH Spending Variance
t. FMOH Production-volume Variance
u. FMOH Operating-Income Variance
v. FMOH Flexible-budget Variance
w. FMOH Under/Over Applied Amount
x. FMOH Static-budget Variance
DM
Actual Costs
Aqp X Ap
Aqp X Sp
Purchase Price
Variance
Actual Costs
Static Budget
Aqu X Ap
Aqu X Sp
SQA X S
BQA X BP
Usage Price
Efficiency
Sales-Volume
Variance
Variance
Variance
Flexible-budget
Variance
DML
Actual Costs
Static Budget
AXA
AX S
SQA X S
BQA X BP
10
Rate
Efficiency
Sales-Volume
Variance
Variance
Variance
Flexible-budget
Variance
VMOH
Actual Costs
Applied VMOH
AXA
AX S
11
SQA X S
12
SXS
13
14
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Operating-
Flexible-budget
Sales-Volume
Variance
Variance
Overapplied VMOH
FMOH
Actual Costs
Applied FMOH
AXA
16
BFMOH
17
BFMOH
18
SXS
19
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Flexible-budget
Sales-Volume
Variance
Variance
Overapplied FMOH
1
2
3
4
5
6
7
8
Operating-
Operating-
9
10
11
12
13
14
15
16
17
18
19
20
Required: For the month of January, 2009, compute the following cost variances, indicating whether each is favorable (F) or unfavo
Use the post method. Detail your calculations using the diagrams below and the reference numbers below.
($5,000) Favorable
b. DM Usage Price Variance
($4,470) Favorable
c. DM Efficiency Variance
($13,050) Favorable
d. DM Sales-Volume Variance
$11,250 Unfavorable
e. DM Flexible-budget Variance
($17,520) Favorable
f. DM Static Budget Variance
($6,270) Favorable
g. DML Rate Variance

h. DML Efficiency Variance
i. DML Sales-Volume Variance
j. DML Flexible-budget Variance
k. DML Static-budget Variance
l. VMOH Spending Variance
m. VMOH Efficiency Variance
n. VMOH Operating-Income Variance
o. VMOH Flexible-budget Variance
p. VMOH Sales-Volume Variance
q. VMOH Under/Over Applied Amount
r. VMOH Static-budget Variance
s. FMOH Spending Variance
t. FMOH Production-volume Variance
u. FMOH Operating-Income Variance
v. FMOH Flexible-budget Variance
w. FMOH Under/Over Applied Amount
x. FMOH Static-budget Variance
$27,500
$75,000
$30,000
$102,500
$132,500
$2,682
($5,220)
$4,500
($2,538)
$4,500
($2,538)
$1,962
($2,000)
($7,500)
$7,500
($2,000)
($9,500)
($2,000)
Unfavorable
Unfavorable
Unfavorable
Unfavorable
Unfavorable
Unfavorable
Favorable
Unfavorable
Favorable
Unfavorable
Overapplied
Unfavorable
Favorable
Favorable
Unfavorable
Favorable
Overapplied
Favorable
DM
Actual Costs
Aqp X Ap
Aqp X Sp
20,000 X $14.75
$295,000
20,000 X $15
$300,000
($5,000)
Favorable
Purchase Price
Variance
Actual Costs
18,750
18,000
Static Budget
Aqu X Ap
Aqu X Sp
SQA X S
BQA X BP
17,880 X $14.75
$263,730
17,880 X $15
$268,200
12,500 X 1.5 X $15

$281,250
12,000 X 1.5 X $15

$270,000
($4,470)
($13,050)
$11,250
Favorable
Favorable
Unfavorable
Usage Price
Efficiency
Sales-Volume
Variance
Variance
Variance
(Cost portion)
($17,520)
($17,520)
$11,250
Favorable
Unfavorable
Flexible-budget
Sales-Volume
Variance
Variance
($6,270)
($6,270)
($6,270)
Favorable
DML
Actual Costs
$31
AXA
25,000
AX S
24,000
SQA X S
Static Budget
BQA X BP
27,500 X $31
$852,500
27,500 X $30
$825,000
12,500 X 2.00 X $30

$750,000
12,000 X 2.00 X $30

$720,000
$27,500
$75,000
$30,000
Unfavorable
Unfavorable
Unfavorable
Rate
Efficiency
Sales-Volume
Variance
Variance
Variance
(Cost Portion)
$102,500
$102,500
$30,000
Unfavorable
Unfavorable
Flexible-budget
Sales-Volume
Variance
Variance
$132,500
(Cost Portion)
$132,500
$132,500
Unfavorable
VMOH
Actual Costs
$6.15
4-way
18,750
18,750
Applied VMOH
AXA
AX S
SQA X S
SXS
17,880 X $6.15
$109,962
17,880 X $6
$107,280
12,500 X 1.5 X $6
$112,500
12,500 X 1.5 X $6
$112,500
$2,682
($5,220)
$0
Unfavorable
Favorable
Always Zero
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Operating-
($2,538)
$4,500
($2,538)
$4,500
Favorable
Unfavorable
Flexible-budget
Sales-Volume
Variance
Variance
($2,538)
($2,538)
Overapplied VMOH
Operating-
$1,962
$1,962
$1,962
$1,962
Unfavorable
FMOH
$9.96
Actual Costs
Applied FMOH
AXA
BFMOH
BFMOH
18,750
17,880 X $9.96
$178,000
12,000 X 1.5 X $10

18,000 X $10
$180,000
12,000 X 1.5 X $10

18,000 X $10
$180,000
SXS
12,500 X 1.5 X $10

18,750 X $10
$187,500
($2,000)
$0
($7,500)
Favorable
Always Zero
Favorable
Spending
Efficiency
Production-Volume
Variance
Variance
Variance
Operating-
($2,000)
$0
($2,000)
$0
Favorable
Always Zero
Flexible-budget
Sales-Volume
Variance
Variance
($9,500)
($9,500)
Overapplied FMOH
($2,000)
($2,000)
($2,000)
($2,000)
Favorable
Operating-
Acctg. Records
Oper. Income
Based on Budgeted
Profit/Unit
Sales
COGS
Direct material
Direct labor
VMOH
FMOH
Gross Profit
Actual Results
Flexible Budget
Flexible Budget
(Applied)
12,500
12,500
12,500
12,500
17,880
17,880
18,750
18,750
$2,437,500
($62,500)
$2,500,000
$0
$2,500,000
$0
$2,500,000
$263,730
$852,500
$109,962
$178,000
$1,404,192
$1,033,308
($4,470)
$268,200
$825,000
$107,280
$180,000
$1,380,480
$1,119,520
($13,050)
$281,250
$750,000
$112,500
$180,000
$1,323,750
$1,176,250
$0
$281,250
$750,000
$112,500
$187,500
$1,331,250
$1,168,750
$27,500
$2,682
($2,000)
$23,712
($86,212)
$75,000
($5,220)
$0
$56,730
($56,730)
$0
$0
($7,500)
($7,500)
$7,500
nick-knacks. AAC classifies

category -- manufacturing
roduction based upon allowed
mediately sold at the budgeted
) or unfavorable (U).
Static Budget
BQA X BP
15
Operating- Income
Variance
Static Budget
20
Operating- Income
Variance
Operating- Income
Variance
) or unfavorable (U).
$15
$30
18,000
Static Budget
BQA X BP
$6
12,000 X 1.50 X $6
$108,000
$4,500
Unfavorable
Operating- Income
Variance
$4,500
Unfavorable
Operating- Income
Variance
18,000
$10
Static Budget
12,000 X 1.5 X $10

18,000 X $10
$180,000
$7,500
Unfavorable
Operating- Income
Variance
$7,500
Unfavorable
Operating- Income
Variance
ted
Static Budget
12,000
Knick-knacks
18,000
pounds of glass
$100,000
$2,400,000
$11,250
$270,000
$720,000
$108,000
$180,000
$1,278,000
$1,122,000
$30,000
$4,500
$7,500
$53,250
$46,750
$53,250
($6,270)
($6,270)
$132,500
$132,500
$1,962
$1,962
($2,000)
($2,000)
$126,192
$126,192
($88,692)
($88,692)
Name
Score
Actual Costs
Adjusted Budget
Adjusted Budget
Applied Mfg. Overhead
Static Budget
AQ X AR
AQ X SR
SQA X SR
SQA X SR
BQA X SR
(1)
(2)
(3)
(5)
(4)
(6)
(7)
(8)
Match the number in the chart with the manufacturing overhead variance name below by placing the appropriate number on
the line in front of the variance name.
1
Spending Variance
Flexible-budget Variance
Over/under applied manufacturing overhead
Operating- Income Variance
Efficiency Variance
Name
Score
Actual Costs
Adjusted Budget
Adjusted Budget
Applied Mfg. Overhead
Static Budget
AQ X AR
AQ X SR
SQA X SR
SQA X SR
BQA X SR
(5)
(6)
(7)
(3)
(8)
(4)
(2)
(1)
Match the number in the chart with the manufacturing overhead variance name below by placing the appropriate number on
the line in front of the variance name.
6
Efficiency Variance
Flexible-budget Variance
Operating- Income Variance
Over/under applied manufacturing overhead
Spending Variance

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Exercise 8-24: Overhead Variances, service sector.

$4.00 Budgeted FMOH rate per delivery hour

Overhead portion of Std. Cost Card

8,600 X .6581 X $1.75

8,600 X .70 X $1.75

8,600 X .70 X $1.75

12,000 X .70 X $1.75

Operating- Income Volume

Operating- Income Volume

Actual Costs 5,660

Alternative calculation of production-volume variance:

Budgeted Industry Size

Actual Market Size

Actual Market Size

Actual Market Size

Actual Market Size

Actual Market Size

Budgeted Market Size

Actual Market Share

Actual Market Share

Actual Market Share

Actual Market Share

Budgeted Mkt. Share

Budgeted Mkt. Share

Actual input ratio

Actual input ratio

Budgeted input ratio

Budgeted input ratio

Budgeted input ratio

Budgeted input ratio

AVMOH rate/delivery hr.

BVMOH rate/delivery hr.

Operating- Income Volume Variance

Actual Market Size

Actual Market Size

Actual Market Size

Actual Market Size

Actual Market Size

Budgeted Market Size

Actual Market Share

Actual Market Share

Actual Market Share

Actual Market Share

Budgeted Mkt. Share

Budgeted Mkt. Share

Actual input ratio

Actual input ratio

Budgeted input ratio

Budgeted input ratio

Budgeted input ratio

Budgeted input ratio

AFMOH rate/delivery hr.

BFMOH rate/delivery hr.

Operating- Income Volume Variance

Budgeted Mkt. Share

Budgeted input ratio

BVMOH rate/delivery hr.

Budgeted Mkt. Share

Budgeted input ratio

BFMOH rate/delivery hr.

Exercise 8-23: Straightforward coverage of manufacturing overhead, standard-costing system.

65,500 X 1.16641 X $1.908246

Alternative calculation of production-volume variance: