Question

2. Different management levels in Echuca Pty Ltd require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows: Budgeted output units Budgeted fixed manufacturing overhead Budgeted variable manufacturing overhead Budgeted direct manufacturing labour hours Fixed manufacturing costs incurred Direct manufacturing labour hours used Variable manufacturing costs incurred Actual units manufactured 6400 units $40 000 $10 per direct labour hour 1 hour per unit $52 000 7200 $71 200 6800 Required: a. Compute a 4-variance analysis for the plant controller. b. Compute a 3-variance analysis for the plant manager. c. Compute a 2-variance analysis for the corporate controller. d. Compute the flexible-budget variance for the manufacturing vice CEO.

Answer 1

1. 4 Variance Analysis

# Variable Overhead Spending Variance =$71,200 - ($7,200 * $ 10)

=$71,200 - $72,000 = $ 800 Favourable

#Variable Overhead Efficiency Variance =$10 (7,200 - 6,800 *)

= 4,000 Unfavorable

* 6,800 × 1 hours = 6,800 hours

# Fixed Overhead Spending Variance = Actual Fixed Overhead - Budgeted Fixed Overheads = $52,000 -$40,000 = $12,000 Unfavorable

Fixed Overhead Production Volume Variance = $40,000 - ( 6,800 × 1 × 6.25 *)

= $ 40,000 - $ 42,500= $ 2,500 Favourable

* $40,000 / (6,400 units × 1 hour ) = 6.25

B. ) 3 - Variance Analysis

Spending Variance = 800 Favourable + 12,000 Unfavorable

= 11,200 Unfavorable

Efficency Variance = $ 4,000 Unfavorable

Production Volume Variance = 2,500 Favourable

C.) 2 Variance Analysis

Flexible Budget Variance = $800 F + 4,000 U + $12,000 U

= $15,200 Unfavorable

Production Volume Variance = $ 2,500 Favourable

D. 1 Variance Analysis

	Actual	Flexible Budget	Variance
Fixed Overhead	$52,000	$42,500	$9,500 U
Variable Overheads	$71,200	$68,000	$3,200 U
Flexible Budget Variance			$12,700 U

6.25 × 6,800 × 1 = $ 42,500

6,800 × 1 × $10 = $ 6,8000