Finance Sample Study: Variances, overhead flexible budget
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Compute the total overhead variance, the overhead flexible budget variance, and the production volume variance.
A. Prepare flexible budget income statements for 7,500, 9,000 and 11,000 units.
B. Graph the behavior of the company total costs.
C. Why might Cellular Technologies managers want to see the graph you prepared in requirement 2 as well as the columnar format analysis in requirement 1? What is the disadvantage of the graphic approach in requirement 2?
Prepare Wang's income statement performance report in a format similar to example given below. What variance contributed most to the year's favorable results? What caused this variance?
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Solutions following each question:
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<br><br>The following direct materials variance computation is incomplete:
<br><br>
<br><br>Price variance = (? - $12)x 14,500 pounds + $5,800 U
<br><br>Efficiency variance = (? - 14, 700 pounds) x $12 = ? F
<br><br>Flexible budget variance = 3, 400?
<br><br>Fill in the missing values; identify the flexible budget as favorable or unfavorable.
<br><br>
<br><br>Solution:
<br><br>Efficiency variance = (14,500 - 14,700) * $12 = - $2,400
<br><br>Flexible budget variance = $3,400
<br><br>Thus, Price variance = $3,400 - (- $2,400 ) = $5,800
<br><br>Therefore, Price variance = ($12 - $12) * 14,500 + $5,800
<br><br>
<br><br>The flexible budget is unfavorable.
<br><br>
<br><br>
<br><br>2.
<br><br>Polystar manufactures carpeting. The company charges the following standard unit costs to production on the basis of static budget volume of 30,000 linear feet of carpet per month:
<br><br>Direct materials $2.50
<br><br>Direct Labor 2.00
<br><br>Manufacturing overhead 1.50
<br><br>Standard Unit cost $6.00
<br><br>Polystar used the following monthly Flexible budget overhead:
<br><br>
<br><br> Number of Outputs-(linear feet)
<br><br>
<br><br> 27,000 30,000 33,000
<br><br>
<br><br>Standard machine hours 2,700 3,000 3,300
<br><br>Budgeted manufacturing overhead cost:
<br><br>Variable $13, 500 $15,000 $16, 500
<br><br>Fixed ...
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