Question

The Indonesia 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:

Answer 1

Canadian Telecommunication Requirement 1 Summary details are: Output units Allocation base (machine-hours) Allocation base per output unit Variable MOH Variable MOH per hour Fixed MOH Fixed MOH per hour Actual 64500 75600 1.17 536740 7.1 145900 1.93 Flexible Budget 64500 77400 1.2 541800 137000 64,500 x 1.2 = 77,400 75,600 + 64,500 = 1.14 $145,900 - 75,600 = $1.93 $536,740 - 75,600 = $7.10 64,500 x 1.2 x $7 = $541,800 An overview of the 4-variance analysis is: Production Volume Variance 4-Variance Analysis Variable Mfg.Ohd. Fixed Mfg. Ohd. Spending Efficiency Variance Variance 7540 U 12600 F 8900 U Never a Variance Variable Spending Variance = 536740 - ( 7 x 75600) = 7540 U Efficiency Variance = ( 7 x 75600) - (77400 x 7) = 529200 - 541800 = 12600 F Flexible Budget Variance = 12600 F + 7540 U = 5060 F Fixed Spending Variance = 145900 - 137000 = 8900 U Production Volume Variance = 137000 - (77400 x 2) = 17800 F Flexible Budget Variance = 145900 - 137000 = 8900 U Fixed Manufacturing Overhead = 137000 / 68500 = 2

Requirement 2 Journal Enteries Date Particulars Variable Manufacturing Overhead Control a/c Dr. To Accounts Payable Control and other accounts Debit in $ Credit in 536740 536740 541800 Work-in-Process Control a/c Dr. To Variable Manufacturing Overhead Allocated 541800 541800 7540 Variable Manufacturing Overhead Allocated a/c Dr. Variable Manufacturing Overhead Spending Variance a/c Dr. To Variable Manufacturing Overhead Efficiency Variance To Variable Manufacturing Overhead Control 12600 536740 145900 Fixed Manufacturing Overhead Control a/c Dr. To Wages Payable Control, Accumulated Depreciation Control, etc. 145900 154800 Work-in-Process Control a/c Dr. To Fixed Manufacturing Overhead Allocated 154800 154800 8900 Fixed Manufacturing Overhead Allocated a/c Dr. Fixed Manufacturing Overhead Spending Variance a/c Dr. To Fixed Manufacturing Overhead Production-Volume Variance To Fixed Manufacturing Overhead Control 17800 145900 Requirement 3 The control of variable manufacturing overhead requires the identification of the cost drivers for such iter as energy, supplies, and repairs. Control often entails monitoring nonfinancial measures that affect each cost item, one by one. Examples are kilowatt-hours used, quantities of lubricants used, and repair parts and hours used. The most convincing way to discover why overhead performance did not agree with a budget is to investigate possible causes, line item by line item. Requirement 4 The variable overhead spending variance is unfavorable. This means the actual rate as energy, supplies, and repairs. Control often entails monitoring nonfinancial measures that affect each applied to the manufacturing costs is higher than the budgeted rate. Since variable overhead consists of several differer costs, this could be for a variety of reasons, such as the utility rates being higher than estimated or the indirect materials costs per unit of denominator activity being more than estimated. The variable overhead efficiency variance is favorable, which implies that the estimated denominator activity was too high. Since the denominator activity is machine hours, this could be the result of efficient use of machines, better scheduling of production runs, or machines that are well maintained and thus are working at more than the expected level of efficiency.