Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 Fixed manufacturing overhead
Actual costs incurred Same lump sum regardless of output level Same lump sum regardless of output levelAllocated (Budgeted input allowed for actual output achieved ×
Budgeted rate)
€503,420
€480,000
€480,000
(7,400
× 2 × €30.00)
€444,000
€23,420 U
€36,000 U
Spending variance
Never a variance Production-volume variance Summary information is
Actual Flexible budget Static budget Output units
7,400 7,400 8,000 Allocation base (hours)
16,280 a 16,000
b
Allocation base per output unit
2.20 2.00 2.00 Variable MOH
€610,500 c – Variable MOH per hour d €40.00
– Fixed
MOH
€503,420 €480,000 €480,000 Fixed MOH per hour e –
€30.00
f
a
7,400
× 2.00 = 14,800 b
8,000
× 2.00 = 16,000 c
7,400
× 2 × €40 = €592,000 d €610,500 ÷ 16,280 hours = €37.50 per hour e €503,420 ÷ 16,280 hours –
€30.92 per hour f €480,000 ÷ 16,000 hours = €30
per hour 2 Mondragon produces 600 fewer CardioX units than were budgeted. The variable manufacturing overhead cost efficiency variance of €59,200 U arises because more assembly time hours per output unit (16,280 ÷ 7,400 = 2.2 hours) were used than the budgeted 2.0 hours per unit. The variable manufacturing overhead cost spending variance of €40,700 F indicates one or more of the following probably occurred (i) actual prices of individual items included invariable overhead differ from their budgeted prices, or (ii) actual usage of individual items included invariable overhead differs from their budgeted usage. The fixed manufacturing overhead cost spending variance of €23,420 U means that the fixed overhead was above that of the budgeted. For example, it could be due to an unexpected increase in plant leasing costs. The unfavourable production-volume variance of €36,000 arises because the actual output of 7,400 units is below the
8,000 units used in determining the €30.00 per assembly-hour budgeted rate.
3 Planning
and control of variable manufacturing overhead costs has both a long-run and a short-run focus. It involves Mondragon planning to undertake only value- added overhead activities (a long-run view) and then managing the cost drivers of those activities in the most efficient way (a short-run view. Planning and control of
fixed manufacturing overhead costs at Mondragon has primarily a long-run focus. It involves undertaking only value-added fixed-overhead activities fora budgeted level of output. Mondragon makes most of the key decisions that determine the level of fixed-overhead costs at the start of the accounting period.
Bhimani, Horngren, Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
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