Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 52

ABC Costing Alden Company uses a two-variance analysis for overhead variances. Practical capacity is defined as 32 setups and 32,000 machine hours to manufacture 6,400 units for the year. Selected data for 2010 follow:

Budgeted fixed factory overhead:
Setup	$ 64,000
Other	200,000	$264,000
Total factory overhead incurred		$480,000
Variable factory overhead rate:
Per setup		$600
Per machine hour		$5
Total standard machine hours allowed for the units manufactured		30,000 hours
Machine hours actually worked		35,000 hours
Actual total number of setups		28

Required

1. Compute (a) the total overhead spending variance, (b) the overhead efficiency variance, and (c) the total overhead flexible-budget variance for 2010.

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2. Assume that the company includes all setup costs as variable factory overhead. The budgeted total fixed overhead, therefore, is $200,000, and the standard variable overhead rate per setup is $2,600. What are the (a) overhead spending, (b) efficiency, and (c) flexible-budget variances for the year?

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3. Assume that the company uses only machine hours as the activity measure to apply both variable and fixed overhead, and that it includes all setup costs as variable factory overhead. What is the (a) overhead spending variance, (b) efficiency variance, and (c) flexible-budget variance for the year?

Step 1 of 2

ABC Costing(45-50 minutes)

Standard MH per unit = 32,000 MH ÷ 6,400 units = 5 MH per unit

No. of units manufactured during the period = standard allowed MH ÷ standard MH/unit = 30,000MH ÷ 5MH/unit = 6,000 units

Budgeted no. of units/setup = 6,400 units ÷ 32 set-ups = 200 units/set-up

Standard no. of setups for the units manufactured = 6,000 ÷ 200 = 30

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