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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

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12 27
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
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

Add: Initial Production $50,000$120,000

Dept. Costs

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

Production Dept.

step method service dept 1 goes first on the basis that it has the highest total cost
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

Add: Initial Production $50,000 $120,000

Dept Costs

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

Production Department

12 35
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

Additional Cost 9,000 7,000 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

12 351
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

Additional Cost 9,000 7,000 8,000

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

Unit Cost $6.244 $10.861 $29.333

Unit Gross Profit $4.756 $.389 $ .667

schmidt machinery company analysis of operating results june 2007
SCHMIDT MACHINERY COMPANYAnalysis of Operating ResultsJune 2007

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
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

13 371
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
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 problem1
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 problem2
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 problem3
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 problem4
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 problem5
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 problem6
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 problem7
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 problem8
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 problem9
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 problem10
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 problem11
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 problem12
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 problem13
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 problem14
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 problem15
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 problem16
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 problem17
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 problem18
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 problem19
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
Assignment
  • For next class do 14-30 Part 1, 14-31Parts 1 & 2 and 14-32 Part 1
14 31
14-31

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

= FOH spending variance = $2,000U

14 32
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

14 322
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