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# 12-27 - PowerPoint PPT Presentation

12-27. First, find the unknown service rates: From S1 to P2 = 100% - 10% - 20% = 70% From S2 to P1 = 100% - 10% - 30% = 60% 1. The Direct Method Net service to both Production Departments for Service Department 1: 100% - 10% = 90% Production Department 1 share: 20%/90% = 2/9

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12-27

First, find the unknown service rates:

From S1 to P2 = 100% - 10% - 20% = 70%

From S2 to P1 = 100% - 10% - 30% = 60%

1. The Direct Method

Net service to both Production Departments for Service

Department 1: 100% - 10% = 90%

Production Department 1 share: 20%/90% = 2/9

Production Department 2 share: 70%/90% = 7/9

Net Service to both Production Departments for Service

Department 2: 100% - 10% = 90%

Production Department 1 share: 60%/90% = 2/3

Production Department 2 share: 30%/90% = 1/3

Direct Method

Production department 1 Production department 2

Service department 1 \$180,000 x 2/9 = \$40,000 \$180,000 x 7/9 = \$140,000

cost allocation

Service department 2 \$60,000 x 2/3 = \$40,000 \$60,000 x 1/3 = \$20,000

cost allocation

Dept. Costs

Total Cost for Each \$130,000 \$280,000

Production Dept.

Step MethodService Dept 1 goes first on the basis that it has the highest total cost:

Service Dept 2 Production Dept 1 Production Dept 2

Allocation of Service Dept 1 \$180,000 x .1 \$180,000 x .2 = \$36,000 \$180,000 x .7 = \$126,000

= \$18,000

Allocation of Service Dept 2 (\$60,000 + \$18,000) (\$60,000 + \$18,000) x 2/3 = \$52,000 x 1/3 = \$26,000

Dept Costs

Total Cost for Each \$138,000 \$272,000

Production Department

12-35

1. Physical Unit Method (10,000 total units)

\$80,000 x 5,000/10,000 = \$40,000 allocated to X

\$80,000 x 4,000/10,000 = \$32,000 allocated to Y

\$80,000 x 1,000/10,000 = \$ 8,000 allocated to Z

X Y Z .

Allocated Cost \$40,000 \$32,000 \$ 8,000

Total \$49,000 \$39,000 \$16,000

Unit Cost \$9.80 \$9.75 \$16.00

Sales Price \$11.00 \$11.25 \$30.00

Unit Gross Profit \$1.20 \$1.50 \$14.00

12-35

2. Sales Value at Split off Method (total sales value at split off \$90,000)

\$80,000 x \$25,000/\$90,000 = \$22,222 allocated to X

\$80,000 x \$41,000/\$90,000 = \$36,445 allocated to Y

\$80,000 x \$24,000/\$90,000 = \$21,333 allocated to Z

X Y Z .

Allocated Cost \$22,222 \$36,445 \$21,333

Total \$31,222 \$43,445 \$29,333

Unit Cost \$6.244 \$10.861 \$29.333

Unit Gross Profit \$4.756 \$.389 \$ .667

Flexible Master

Actual Budget Budget

Unit sales 9009001,000

Sales (900 x \$840) \$756,000 \$720,000 \$800,000

Total variable expenses 414,000405,000450,000

Contribution margin \$342,000 \$315,000 \$350,000

Fixed expenses 180,000150,000150,000

Operating income \$162,000 \$165,000 \$200,000

Total Master (Static) Budget Variance

\$38,000U

Flexible-budget Sales Volume

Variance Variance

\$3,000U \$35,000U

13-37

(1) (2)

Actual Purchases Actual Purchases

at Actual Cost at Standard Cost

(AQ) x (AP) (AQ) x (SP) (3,350 lbs. x \$30/lb.) (3,350 lbs. x \$25/lb.)

Purchase Price Variance = (1) – (2)

= \$16,750U

(3)

Actual Usage Flexible-Budget

at Standard Cost Amount

(AQ) x (SP) (SQ) x (SP) (3,375 lbs. x \$25/lb.) (3,600 lbs. x \$25/lb.)

Usage Variance = (2) – (3)

= \$5,625F

13-37

(1) (2) (3)

Actual Input Flexible-budget

Actual Input Cost at Standard Cost Amount

(AQ) x (AP) (AQ) x (SP) (SQ) x (SP)

(4,200 hrs. x \$42/hr.) (4,200 hrs. x \$40/ (4,500 hrs. x \$40/hr.)

Quantity (Efficiency)

Price (Rate) Variance = (1) - (2) Variance = (2) - (3)

= \$8,400U = \$12,000F

Total Flexible-Budget Variance = (1) - (3)

= \$176,400 - \$180,000 = \$3,600F

Class problem

Bluecap Co. used a flexible budget system. The following information pertains to 2007 which was prepared at the 80% level of operation:

Number of units 8,000

Total standard direct labor hours 24,000

Flexible budget variable factory overhead \$103,200

Total factory overhead rate per direct labor hour \$15.10

This implies that overhead is being applied on the basis of direct labor hours and that it takes 3 hours for each product (24,000 hours/8,000 products

Class problem

In preparing a budget for 2008 Bluecap decided to raise the level of operation to 90% to manufacture 9,000 units for 27,000 direct labor hours. During 2007, Bluecap spent 28,000 direct labor hours and manufactured 9,600 units. The actual factory overhead was \$14,000 greater than the flexible budget amount for the units produced, of which \$6,000 was due to fixed factory overhead.

The total budget for fixed factory overhead in 2008 is:

A) \$230,400.

B) \$259,200.

C) \$265,200.

D) \$276,480.

E) \$288,000.

Class problem

In preparing a budget for 2008 Bluecap decided to raise the level of operation to 90% to manufacture 9,000 units for 27,000 direct labor hours. During 2007, Bluecap spent 28,000 direct labor hours and manufactured 9,600 units. The actual factory overhead was \$14,000 greater than the flexible budget amount for the units produced, of which \$6,000 was due to fixed factory overhead.

The total budget for fixed factory overhead in 2008 is:

A) \$230,400.

B) \$259,200. Same as 2007

Calculated total overhead rate per hour x budgeted hours - budgeted variable overhead or

( \$15.10 x 24,000 hours) – 103,200

= 362,400 – 103,200

C) \$265,200.

D) \$276,480.

E) \$288,000.

Class problem

The standard fixed overhead application rate in 2008 is:

A) \$4.30 per direct labor hour.

B) \$4.50 per direct labor hour.

C) \$6.90 per direct labor hour.

D) \$9.30 per direct labor hour.

E) \$9.60 per direct labor hour.

Class problem

The standard fixed overhead application rate in 2008 is:

A) \$4.30 per direct labor hour.

B) \$4.50 per direct labor hour.

C) \$6.90 per direct labor hour.

D) \$9.30 per direct labor hour.

E) \$9.60 per direct labor hour.

Class problem

The standard fixed overhead application rate in 2008 is:

A) \$4.30 per direct labor hour.

B) \$4.50 per direct labor hour.

C) \$6.90 per direct labor hour.

D) \$9.30 per direct labor hour.

E) \$9.60 per direct labor hour.

\$252,900/27,000 hours

Class problem

The standard variable overhead application rate in 2008 is:

A) \$4.30 per direct labor hour.

B) \$4.50 per direct labor hour.

C) \$6.90 per direct labor hour.

D) \$9.30 per direct labor hour.

E) \$9.60 per direct labor hour.

Class problem

The standard variable overhead application rate in 2008 is:

A) \$4.30 per direct labor hour.

Same rate as 2007

\$103,200/24,000 hours

B) \$4.50 per direct labor hour.

C) \$6.90 per direct labor hour.

D) \$9.30 per direct labor hour.

E) \$9.60 per direct labor hour.

Class problem

The total flexible budget overhead variance in 2008 is:

A) \$11,440 unfavorable.

B) \$14,000 unfavorable.

C) \$15,040 favorable.

D) \$17,280 favorable.

E) \$17,440 unfavorable.

Class problem

The total flexible budget overhead variance in 2008 is:

A) \$11,440 unfavorable.

B) \$14,000 unfavorable. Given

C) \$15,040 favorable.

D) \$17,280 favorable.

E) \$17,440 unfavorable.

Class problem

The variable overhead spending variance in 2008 is:

A) \$ 6,000 unfavorable.

B) \$ 8,000 unfavorable.

C) \$ 9,200 favorable.

D) \$11,440 unfavorable.

E) \$17,440 unfavorable.

Class problem

The variable overhead spending variance in 2008 is:

A) \$ 6,000 unfavorable.

B) \$ 8,000 unfavorable.

C) \$ 9,200 favorable.

D) \$11,440 unfavorable.

AQ x AH - AH x SQ 9,600 x 3 x \$4.3 + \$8,000 - \$28.000 x \$4.30 \$131,840 - \$120,400

E) \$17,440 unfavorable.

Class problem

The factory overhead spending variance in 2008 using a three-variance analysis is:

A) \$ 3,200 favorable.

B) \$11,440 unfavorable.

C) \$15,040 favorable.

D) \$17,280 favorable.

E) \$17,440 unfavorable.

Class problem

The factory overhead spending variance in 2008 using a three-variance analysis is:

A) \$ 3,200 favorable.

B) \$11,440 unfavorable.

C) \$15,040 favorable.

D) \$17,280 favorable.

E) \$17,440 unfavorable.

Variable + fixed

\$11,440 + 6,000

Class problem

The variable overhead efficiency variance in 2008 is:

A) \$ 3,440 favorable.

B) \$ 8,000 unfavorable.

C) \$ 9,200 favorable.

D) \$11,440 unfavorable.

E) \$17,200 unfavorable.

Class problem

The variable overhead efficiency variance in 2008 is:

A) \$ 3,440 favorable.

AH x SR - SH X SR

28,000 x \$4.30 - 9,600 x 3 x \$4.30

\$120,400 - \$123,840

B) \$ 8,000 unfavorable.

C) \$ 9,200 favorable.

D) \$11,440 unfavorable.

E) \$17,200 unfavorable.

Class problem

The fixed overhead spending variance in 2008 is:

A) \$ 6,000 unfavorable.

B) \$ 8,000 unfavorable.

C) \$ 9,200 favorable.

D) \$11,440 unfavorable.

E) \$17,440 unfavorable.

Class problem

The fixed overhead spending variance in 2008 is:

A) \$ 6,000 unfavorable. Given

B) \$ 8,000 unfavorable.

C) \$ 9,200 favorable.

D) \$11,440 unfavorable.

E) \$17,440 unfavorable.

Class problem

The fixed overhead production volume variance in 2008 is:

A) \$11,280 favorable.

B) \$17,280 favorable.

C) \$28,800 unfavorable.

D) \$34,800 unfavorable.

E) \$57,840 favorable.

Class problem

The fixed overhead production volume variance in 2008 is:

A) \$11,280 favorable.

B) \$17,280 favorable.

Budgets FO - FO Aplied

= \$259,200 - 9,600 x 3 x \$9.60

= \$259.200 - \$276.480

C) \$28,800 unfavorable.

D) \$34,800 unfavorable.

E) \$57,840 favorable.

Assignment
• For next class do 14-30 Part 1, 14-31Parts 1 & 2 and 14-32 Part 1
14-31

2.Fixed factory overhead (FOH) flexible-budget variance

= FOH spending variance = \$2,000U

14-32
• Standard Variable factory overhead rate per direct labor hour:

= \$15,000/2,500 hours = \$6.00/DLH

Standard fixed factory overhead rate per direct labor hour:

= \$90,000/2,500 hrs. = \$36.00/DLH

Standard factory overhead rate per direct labor hour (DLH) \$42.00/DLH

Standard direct-labor hours (DLH) per unit:

= 2,500 hours/5,000 units = 0.5 DLHs per unit

14-32

Spending variance from 14-30 and 14-31

Variable \$ 600F

Fixed 2,000U

Total \$1,400U

Variable efficiency variance = \$1,800U

Fixed Production volume variance = \$3,600U