INTERMEDIATE MANAGEMENT ACCOUNTING IN-CLASS DISCUSSION QUESTIONS (ICQs) CHAPTER 8 1 ICQ #1 (8-29 - 9th Edition) 8-32 Variable manufacturing overhead variance analysis. The Sourdoug Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct cost categories: direct materials and direct manufacturing labour. Variable manufacturing overhead is allocated to products on the basis of standard direct manufacturing labour-hours (DMLH). The following is some budget data for the Sourdough Bread Company: Direct manufacturing labour use 0.02 hours per baguette Variable manufacturing overhead $10.00 per DMLH The Sourdough Bread Company recorded the following additional data for the year ended December 31, 2017: Planned (budgeted) output Actual production Direct manufacturing labour Actual variable MOH 3,100,000 baguettes 2,600,000 baguettes 46,800 DMLH $617,760 REQUIRED 1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labour-hours is Sourdough Bread budgeting?) 2. Prepare a variance analysis of variable manufacturing overhead. Use Exhibit 8-4 for reference. 3. Discuss the variances you have calculated and give possible explanations for them. __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 2 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 3 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 4 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 5 ICQ #2 (8-30 – 9th Edition) 8-33 Fixed manufacturing overhead variance analysis. Sourdough Bread Company also allocates fixed manufacturing overhead to products on the basis of standard direct manufacturing labour hours. For 2017, fixed manufacturing overhead was budgeted at $3.00 per direct manufacturing labour hour. Actual fixed manufacturing overhead incurred during the year was $294,000. REQUIRED 1. Prepare a variance analysis of fixed manufacturing overhead costs. 2. Is fixed overhead underallocated or overallocated? By how much? 3. Comment on your results. Discuss the various variances and explain what may be driving them. __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 6 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 7 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 8 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 9 ICQ #3 (8 -19 – 9th Edition) 8-20 Manufacturing overhead, variance analysis. G-Force Corporation is a manufacturer of centrifuges. Fixed and variable manufacturing overhead cost pools are allocated to each centrifuge using budgeted assembly hours. Budgeted assembly time is two hours per unit. The following table shows the budgeted amounts and actual results related to overhead for June 2018. Actual G-Force Corporation ( June 2018) Results Number of centrifuges assembled and sold 216 Hours of assembly time 411 Variable manufacturing overhead cost per hour of assembly time Variable manufacturing overhead costs $12,420 Fixed manufacturing overhead costs $20,560 Static Budget 200 $ 30.00 $19,200 REQUIRED 1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances using the columnar approach. 2. Prepare journal entries for G-Force’s June 2018 variable and fixed manufacturing overhead costs and variances; write off these variances to cost of goods sold for the quarter ended June 30, 2018. 3. How does the planning and control of variable manufacturing overhead costs differ from the planning and control of fixed manufacturing overhead costs? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 10 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 11 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 12 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 13 ICQ #4 (8 – 20 – 9th Edition) 8-21 Four-variance analysis, fill in the blanks. Pandom Inc. produces chemicals for large biotech companies. It has the following data for manufacturing overhead costs during August 2018: Variable Fixed Actual costs incurred $35,700 $18,000 Costs allocated to products 27,000 14,400 Flexible budget: Budgeted input allowed for actual output produced X budgeted rate 27,000 15,000 Actual input X budgeted rate 31,500 15,000 Required Fill in the variances in the table below. Use F for favourable and U for unfavourable Variable 1. Rate variance $_____ 2. Efficiency variance $_____ 3. Production-volume variance $_____ 4. Flexible-budget variance $_____ 5. Underallocated (overallocated) manufacturing overhead $_____ Fixed $_____ $_____ $_____ $_____ $_____ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 14 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 15 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 16 ICQ #5 (8 -33 – 9th Edition) 8-37 Activity-based costing, batch-level variance analysis. Jo Nathan Publishing Company specializes in printing specialty textbooks for a small but profitable college market. Due to the high setup costs for each batch printed, Jo Nathan holds the book requests until demand for a book is approximately 500. At that point Jo Nathan will schedule the setup and production of the book. For rush orders, Jo Nathan will produce smaller batches for an additional charge of $700 per setup. Budgeted and actual costs for the printing process for 2018 were: Static-Budget Amounts Number of books produced 200,000 Average number of books per setup 500 Hours to set up printers 6 hours Variable overhead cost per setup-hour$ 100 Total fixed setup overhead costs $72,000 Actual Results 216,000 480 6.5 hours $90 $79,000 Required 1. What is the static-budget number of setups for 2018? 2. What is the flexible-budget number of setups for 2018? 3. What is the actual number of setups in 2018? 4. Assuming fixed setup overhead costs are allocated using setuphours, what is the predetermined fixed setup overhead allocation rate? 5. Does Jo Nathan's charge of $700 cover the budgeted variable overhead cost of an order? The budgeted total overhead cost? 6. For variable setup overhead costs, calculate the rate and efficiency variances. 7. For fixed setup overhead costs, calculate the rate and the production-volume variances. 8. What qualitative factors should Jo Nathan consider before accepting or rejecting a special order? 17 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 18 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 19 __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 20
