Author Question: The owner's right, claim, or financial interest is referred to as a. assets. b. business entity. ... (Read 88 times)

DyllonKazuo · **on:** Jul 6, 2018

The owner's right, claim, or financial interest is referred to as
a. assets.
b. business entity.
c. equity.
d. revenues.

Question 2

Straightforward 4-variance overhead analysis.

The Lopez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto part, based on a denominator level of 4,000 output units per year, included 6 machine-hours of variable manufacturing overhead at 8 per hour and 6 machine-hours of fixed manufacturing overhead at 15 per hour. Actual output produced was 4,400 units. Variable manufacturing overhead incurred was 245,000. Fixed manufacturing overhead incurred was 373,000. Actual machine-hours were 28,400.

Required:
1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances, using the 4-variance analysis in Exhibit 8- 4 (page 304).
2. Prepare journal entries using the 4-variance analysis.
3. Describe how individual fixed manufacturing overhead items are controlled from day to day.
4. Discuss possible causes of the fixed manufacturing overhead variances.

makaylafy · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

C

Answer to Question 2

1. The budget for fixed manufacturing overhead is 4,000 units 6 machine-hours 15 machine-hours/unit = 360,000.

An overview of the 4-variance analysis is:

4-Variance
Analysis Spending
Variance Efficiency
Variance Production -

Volume Variance
Variable
Manufacturing
Overhead
17,800 U
16,000 U

Never a Variance

Fixed
Manufacturing
Overhead

13,000 U

Never a Variance

36,000 F

Solution Exhibit 8- 22 has details of these variances.

A detailed comparison of actual and flexible budgeted amounts is:

Actual Flexible Budget
Output units (auto parts) 4,400 4,400
Allocation base (machine-hours) 28,400 26,400a
Allocation base per output unit 6.45b 6.00
Variable MOH 245,000 211,200c
Variable MOH per hour 8.63d 8.00
Fixed MOH 373,000 360,000e
Fixed MOH per hour 13.13f

a4,400 units 6.00 machine-hours/unit = 26,400 machine-hours
b28,400 4,400 = 6.45 machine-hours per unit
c 4,400 units 6.00 machine-hours per unit 8.00 per machine-hour = 211,200
d 245,000 28,400 = 8.63
e 4,000 units 6.00 machine-hours per unit 15 per machine-hour = 360,000
f 373,000 28,400 = 13.13
2. Variable Manufacturing Overhead Control 245,000
Accounts Payable Control and other accounts 245,000

Work-in-Process Control 211,200
Variable Manufacturing Overhead Allocated 211,200

Variable Manufacturing Overhead Allocated 211,200
Variable Manufacturing Overhead Spending Variance 17,800
Variable Manufacturing Overhead Efficiency Variance 16,000
Variable Manufacturing Overhead Control 245,000

Fixed Manufacturing Overhead Control 373,000
Wages Payable Control, Accumulated Depreciation
Control, etc. 373,000

Work-in-Process Control 396,000
Fixed Manufacturing Overhead Allocated 396,000

Fixed Manufacturing Overhead Allocated 396,000
Fixed Manufacturing Overhead Spending Variance 13,000
Fixed Manufacturing Overhead Production-Volume Variance 36,000
Fixed Manufacturing Overhead Control 373,000

3. Individual fixed manufacturing overhead items are not usually affected very much by day-to-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, management salaries) and sometimes covering many years (for example, long-term leases and depreciation on plant and equipment).

4. The fixed overhead spending variance is caused by the actual realization of fixed costs differing from the budgeted amounts. Some fixed costs are known because they are contractually specified, such as rent or insurance, although if the rental or insurance contract expires during the year, the fixed amount can change. Other fixed costs are estimated, such as the cost of managerial salaries, which may depend on bonuses and other payments not known at the beginning of the period. In this example, the spending variance is unfavorable, so actual FOH is greater than the budgeted amount of FOH.
The fixed overhead production volume variance is caused by production being over or under expected capacity. You may be under capacity when demand drops from expected levels or if there are problems with production. Over capacity is usually driven by favorable demand shocks or a desire to increase inventories. The fact that there is a favorable volume variance indicates that production exceeded the expected level of output (4,400 units actual relative to a denominator level of 4,000 output units).

EXHIBIT 8- 22

Actual Costs
Incurred
(1)

Actual Input
Budgeted Rate
(2) Flexible Budget:
Budgeted Input
Allowed for
Actual Output
Budgeted Rate
(3) Allocated:
Budgeted Input
Allowed for
Actual Output
Budgeted Rate
(4)
Variable
MOH
245,000 (28,400 8)
227,200 (4,400 6 8)
211,200 (4,400 6 8)
211,200

Actual Costs Incurred
(1)
Same Budgeted
Lump Sum
(as in Static Budget)
Regardless of
Output Level
(2) Flexible Budget:
Same Budgeted
Lump Sum
(as in Static Budget)
Regardless of
Output Level
(3)
Allocated:
Budgeted Input
Allowed for
Actual Output
Budgeted Rate
(4)
Fixed
MOH
373,000 (4,000 6 15)
360,000 (4,000 6 15)
360,000 (4,400 6 15)
396,000