Variance Analysis II Developing Budgeted Variable Overhead Allocation

Variance Analysis II

Developing Budgeted Variable Overhead Allocation Rates Step 1: Choose the time period used to compute the budget. . Webb Co. uses a twelve-month budget period. Step 2: Select the cost-allocation base. Webb budgets 57, 600 machine-hours for a budgeted output of 144, 000 jackets in year 2008, or 0. 40 MH per jacket.

Developing Budgeted Variable Overhead Allocation Rates Step 3: Determine the variable overhead costs. . Webb’s budgeted variable manufacturing costs for 2008 are $1, 728, 000. Step 4: Compute the spending rate per unit of the allocation base. $1, 728, 0000 ÷ 57, 600 MH = $30/MH

Developing Budgeted Variable Overhead Allocation Rates What is the budgeted variable overhead cost rate per output unit (jacket)? 0. 40 MH allowed per output unit × $30 budgeted variable overhead cost rate per MH (input) = $12 per jacket (output)

Variable Overhead Data For April 2008 Cost Item/Allocation Base 1. Output units (jackets) Actual Result Flexible. Budget Amount 10, 000 4, 500 4, 000 0. 45 0. 40 $130, 500 $120, 000 5. Variable manufacturing overhead costs per machine-hour $29. 00 $30. 00 6. Variable manufacturing overhead costs per output unit $13. 05 $12. 00 2. Machine-hours 3. Machine-hours per output unit 4. Variable manufacturing overhead costs

Variable Overhead Variance Analysis

Journal Entries For Variable Overhead 1. Manufacturing Overhead 130, 500 Accounts Payable and various other accounts 130, 500 To record actual variable overhead costs incurred. 2. Work-in-Process Inventory Manufacturing Overhead To record variable overhead cost allocated. 120, 000

Journal Entries For Variable Overhead (cont. ) 3. Variable Overhead Efficiency Variance Manufacturing Overhead Variable Overhead Spending Variance 15, 000 10, 500 4, 500 To record variances for the accounting period. Cost of Goods Sold Variable Overhead Spending Variance Variable Overhead Efficiency Variance To close variable overhead variances into COGS. 10, 500 4, 500 15, 000

Developing Budgeted Fixed Overhead Allocation Rates Step 1: Choose the time period used to compute the budget. . The budget period is typically twelve months. Step 2: Select the cost-allocation base. Webb budgets 57, 600 machine-hours for a budgeted output of 144, 000 jackets in year 2008, or 0. 40 MH per jacket.

Developing Budgeted Fixed Overhead Allocation Rates Step 3: Determine the fixed overhead costs. Webb’s manufacturing budget for 2008 is $3, 312, 000, or $276, 000 per month Step 4: Compute the rate per unit of the allocation base. $3, 312, 000 ÷ 57, 600 = $57. 50 per machine hour

Developing Budgeted Fixed Overhead Allocation Rates What is the budgeted fixed overhead cost rate per output unit (jacket)? 0. 40 hours allowed per output unit × $57. 50 budgeted fixed overhead cost rate/machine hour = $23 per jacket (output unit)

Fixed Overhead Variance Analysis

Journal Entries For Fixed Overhead 1. Manufacturing Overhead 285, 000 Acoounts Payable, Accumulated Depreciation and various other accounts 285, 000 To record actual fixed overhead costs incurred. 2. Work-in-Process Inventory Manufacturing Overhead To record fixed overhead costs allocated, 230, 000

Journal Entries For Fixed Overhead (cont. ) 3. Fixed Overhead Spending Variance Fixed Overhead Production-Volume Variance 9, 000 46, 000 Manufacturing Overhead 55, 000 To record variances for the accounting period. 4. Cost of Goods Sold Fixed Overhead Spending Variance Fixed Overhead Production Volume Variance To close variances into COGS. 55, 000 9, 000 46, 000

Sales Volume Variance Analyzed Level 2 Level 3 Sales-volume variance $64, 000 U Production-volume variance $46, 000 U Gross Margin Variance $18, 000