Question

The Yemen division of a Canadian telecommunications company uses standard costing for its machine-paced production of telephone equipment. Data regarding production during June are as follows: (Click the icon to view data.) Read the requirements Requirement 1. Prepare an analysis of all manufacturing overhead variances. Use the variance analysis framework Begin by calculating the following amounts for the variable overhead Actual Input Actual Costs X Flexible Allocated Incurred Budgeted Rate Budget Overhead Variable OH

Answer 1

Part A

	Actual costs incurred	Actual input X budgeted rate	Flexible budget	Allocated overhead
Variable OH	617140	609600	622080	622080

(76200*8) =609600

	Actual costs incurred	Budgeted	Flexible budget	Allocated overhead
Fixed OH	146500	141000	141000	155520

Allocated overhead = 77760*(141000/70500) =155520

4-Variance Analysis	Spending variance	Efficiency variance	Production volume variance
Variable Manufacturing Overhead	$7540 U	$12480 F	Never a variance
Fixed Manufacturing Overhead	$5500 U	Never a variance	$14520 F

Variable manufacturing Overhead spending variance = 617140-609600 = 7540 U

Variable manufacturing Overhead efficiency variance = 609600-622080 = 12480 F

Fixed Manufacturing Overhead spending variance = 146500-141000 = 5500 U

Fixed Manufacturing Overhead Production volume variance = 141000-155520 = 14520 F

	Actual	Flexible budget
Output units	64800	64800
Allocation base (machine hours)	76200	77760
Allocation base per output unit	1.18	1.2
Variable MOH	617140	622080
Variable MOH per hour	8.10	8
Fixed MOH	146500	141000
Fixed MOH per hour	1.92

Part 2

No.	Account titles and explanation	Debit	Credit
1	Variable Manufacturing Overhead Control	617140
	Accounts Payable Control and other accounts		617140
2	Work-in-Process Control	622080
	Variable Manufacturing Overhead Allocated		622080
3	Variable Manufacturing Overhead Allocated	622080
	Variable Manufacturing Overhead Spending Variance	7540
	Variable Manufacturing Overhead Efficiency Variance		12480
	Variable Manufacturing Overhead Control		617140
4	Fixed Manufacturing Overhead Control	146500
	Wages Payable Control, Accumulated Depreciation Control, etc.		146500
5	Work-in-Process Control	155520
	Fixed Manufacturing Overhead Allocated		155520
6	Fixed Manufacturing Overhead Allocated	155520
	Fixed Manufacturing Overhead Spending Variance	5500
	Fixed Manufacturing Overhead Production-Volume Variance		14520
	Fixed Manufacturing Overhead Control		146500

Part 3

- Identify cost drivers for repairs, supplies, etc.

- Undertake monitoring of nonfinancial parameters like kilowatt-hours used, quantities of lubricants used, and repair parts and hours used

- Investigate possible causes each line item

Part 4

Variable overhead spending variance is unfavorable as actual rate applied > budgeted rate. The reasons for it may be higher estimated rates or indirect costs may be higher than estimates

Variable overhead efficiency variance is favorable due to high estimated denominator activity. The favorable variance indicates the efficient use of machine due to ell maintenance of machines and better production schedules.