Flexible Budgeting and Overhead Variance
Flexible Budget Under Table/ Columnar Format
For the year . . .
Level of activity
...%
...%
Sales units/output units


Sales Revenues Rs.
(A)


Variable Costs:
Direct material @ Rs. . . .


Direct wages @ Rs. . . .


Direct expenses @ Rs . . .


Total Variable Cost
(B)


Semi-variable Costs:
Indirect material @ Rs. . . .


Indirect wages @ Rs. . . .


Repair and maintenance @ Rs . . .


Total Semi-variable Cost
(C)


Fixed Costs:
Depreciation


Salaries


Supervision and inspection


Insurance


Other Fixed Costs


Total Fixed Costs
(D)


Total Costs
(B + C + D) = E


Net Profit (Loss)
(A – E)


...%


















Flexible Budget
Under Formula Format Y = a + bX
Amounts
Cost at … Units
Cost at
Units
Fixed:
Salaries
Depreciation
Indirect labour
xxxxxx
xxxxxx
xxxxxx
xxx
xxx
xxxxxx
xxxxxx
xxxxxx
xxxxxx
Total
xxxxxx
xxx
xxxxxx
Direct materials
xxxxxx
xxx
xxxxxx
Direct labour
xxxxxx
xxx
xxxxxx


Expenses
Variable:
Total Cost
1
Problems on Flexible Budgeting and Overhead Variances
P – 1. A company produces 10,000 units at 100% capacity, and the costs at this level are as
follows:
Fixed costs Rs. 10000
Variable costs Rs. 3 per unit
Semi-variable costs Rs. 4 per unit (40% variable)
Required: Flexible budget for budgeted level of activity of 80%, 90% and 100%.
P – 2. The expenses budgeted for production of 10,000 units in a factory is furnished below:
Particulars
Material
Labour
Variable overhead
Fixed overheads (Rs. 100,000)
Variable expenses (direct)
Selling expenses (10% fixed)
Distribution expenses (20% fixed)
Administration expenses (Rs. 50,000)
Total cost of sale per unit
Per unit Rs.
70
25
20
10
5
13
7
5
155
Required: A budget for production of 6,000 units and 8,000 units of showing total cost,
Assume that administration expenses are rigid for all levels of production.
P – 3. A company has installed a machine with a capacity of producing 120,000 units of
output annually. To provide reasonability in planning and controlling process it has
defined its annual normal capacity as 100,000 units. The company's cost structures at
two different levels of output are given below:
Volume of output
50,000 units
100,000 units
Total cost
Rs. 500,000
Rs. 800,000
Required:
(a) Flexible budgeting data by segregating cost
(b) Budget for the production volume of 70,000 units and 110,000 units.(TU 2052)
P – 4. The budgets for manufacturing overhead of a concern for two levels of activity were
as follows:
Particulars
Capacity Level
5,400 units (60%) 6,300 units(70%)
Rs.37,800
Rs. 44100
16,200
18,900
37,600
41,200
31,500
31,500
42,300
44,100
165,400
179,800
Direct material
Direct wages
Production overhead
Administration overhead
Selling and distribution overhead
Total cost
Profit is 20% of selling price.
Required: A budget based on a level of activity of 50% which should show clearly the
contribution which could be expected.
2
P – 5. For production of 10,000 Electrical Automatic Irons the following are budgeted
expenses:
Particulars
Per unit (Rs.)
Direct materials
60
Direct labour
30
Variable overheads
25
Fixed overheads (Rs. 1,50,000)
15
Variable expenses (direct)
5
Selling expenses (10% fixed)
15
Administrative expenses (Rs. 50,000 rigid for all levels of production)
5
Distribution expenses (20% fixed)
5
Total cost of sale per unit
160
Required: A budget for production of 6,000, 7,000 and 8,000 units showing distinctly
marginal cost and total cost.
P – 6. Kathmandu Enterprises manufacturing dressing table is working at 40% capacity
producing 10,000 tables per year. The cost elements for each table are given as under:
Material
Rs. 20
Labour
Rs. 6
Overhead
Rs. 10 (40% variable)
Each table sells for Rs. 40. The selling price falls by 3% if production is at 50% capacity, and
by 5% if it worked at 90% capacity. The fall is selling prices is accompanied by similar falls
in material prices.
Required: Flexible budget showing fixed cost, variable cost and profit.
Overhead Variance
P – 7 The data below relate to the month of April, 19x6, for Marilyn, Inc., which uses a
standard cost system.
Actual total direct labor $183,400
Actual hours used
14,000
Standard hours
15,000
Direct labor rate variance
$1,400
Actual total overhead
320,000
Budgeted fixed costs
90,000
Normal activity in hours
12,000
Total overhead rate
22.50/DLH
Required: Compute the overhead spending, efficiency and capacity variance.
P – 8 The following are the data relating to overhead expenses of a company.
Normal capacity 100,000 direct labour hours
Standard time for 1 unit of output 4 hours
Flexible budget data = FC + (Unit variable cost  units produced) = Rs. 150,000 +
(10  units produced)
Units produced = 27,500 units
Labours hours paid = 105,000 hours
Total overhead cost paid Rs. 423,000
Required: Overhead three variances
3
P –9. The compiled records of a company are as follows:
Budget
10,000
5,000
Rs. 5,000
20,000
Actual
12,000
5,500
Rs. 5,000
27,500
Outputs
Hrs.
Fixed overhead
Variable overhead
Calculate the three overhead variances.
P – 10. The budgeted data for the Himalayan Company at 100 percent of capacity follows:
Direct labour hours240,000
Variable overhead costs Rs. 120,000
Fixed overhead costs Rs. 180,000
Required:
a) Prepare a flexible overhead budget at 90%, 100% and 105% of capacity.
b) Compute the overhead rate at each capacity.
(TU 2039)
P – 11. The flexible budgeting data regarding a manufacturing company are presented below:
Flexible Budgeting Formula = Fixed cost + Unit variable cost × units
= 90,000 + Rs. 2.00 per hour × hours worked
Other data:
Normal capacity30,000 hours
Hours worked 32,000 hours
Hours produced 28,000 hours
Total overhead expensesRs. 146,000
Required: Analysis of overhead variance (three variances) (TU 2041)
P – 12. The following information:
Actual hours worked 3,100
Fixed overhead (4000 hrs) normal capacity Rs. 16,000
Actual production 25 units
Standard man hour per unit 60
Standard overhead rate per standard man hour Rs. 10
Actual overhead incurred Rs. 32,500
Required: Three variances
(TU 2048)
P – 13. The Kathmandu Manufacture’s Ltd. provided the following information about
manufacturing overhead cost:
Budgeted fixed overhead Rs. 90,000
Normal capacity 30,000 labour hours
Manufacturing overheadRs. 5 per DLH
Actual production in 28,000 DLH48,000 units
Standard output per DLH 1.5 units
Actual manufacturing overhead paidRs. 160,000
Required: Overhead three variances.
(TU 2053)
4
P – 14 The details regarding manufacturing overhead cost are as under:
Normal capacity 20,000 DLH
fixed overhead cost for a capacity volume is Rs.80,000
Variable manufacturing overhead per DLH Rs.6
Standard output per DLH 4 units
Actual output 88,000 units
Actual overhead expensesRs.190,000
Required: Overhead three variances.
(TU 2055)
P – 15 The manufacturing overhead cost of a company at different volume of production
would be as given below:
Production in units
20,000 40,000
Indirect material
40,000 80,000
Indirect labour
60,000 120,000
Supervision cost
40,000 60,000
Heat, light and power
30,000 50,000
Depreciation and others 50,000 50,000
Total MOH cost
220,000 360,000
Company has normal capacity of 20000 DLH and one unit of output would need 0.50 DLH.
The results of working in the previous year were.
Production volume 44,000 units
Direct labour hour paid21,000 hrs
Actual overhead cost incurredRs. 395,000
Required: Overhead three variances (TU 2056)
P – 16 Following information are extracted:
Level of activity (units)
1,000
2,000
Budgeted overhead
Rs. 4,000
Rs. 6,000
Direct labour hours:
Normal Capacity
500 DLH
Output per labour hour – 2 units
Actual production 1200 units
Actual overhead incurred Rs. 4500
Required:
a. Budget for actual output level
b. Three overhead variances (TU Model 2057)
P – 17 The details of overhead cost of a manufacturing company and other information have
been provided.
Expenses
Indirect materials
Indirect labour
Supervision
Heat, Light and Power
Maintenance cost
Depreciation cost
Total
Additional Information:
10,000 units
10,000
20,000
20,000
10,000
10,000
30,000
100,000
5
20, 000 units
20,000
40,000
30,000
15,000
15,000
30,000
150,000
Normal capacity
10,000 DLH
DLH required for 1 unit of output
0.50 DLH
Actual output
22,000 units
Actual hours worked
9500 DLH
Actual overhead cost paid
Rs. 146,900
Required:
1. Budgeted overhead cost of 15,000 units
2. Overhead cost three variances
(TU 2057)
P –18 The Traviata Company produces one product – spaghetti. The product unit is 100
pounds (CWT) of Spaghetti.
Volume in units of product ..........................
Flexible budget data:
Materials .................................................
Labour ....................................................
15,000
($)
30,000
45,000
75,000
25,000
($)
50,000
75,000
125,000
Factory Overhead:
Indirect material .....................................
15,000
25,000
Indirect labour ........................................
30,000
50,000
Supervision .............................................
26,250
33,750
Heat, Light, Power .................................
15,250
22,750
Depreciation ...........................................
63,000
63,000
Insurance and Taxes ...............................
8,000
8,000
Total Factory O/H ..................................
157,500
202,500
Total Manufacturing costs ...........................
232,500
327,500
Other data:
Standard time
:
0.5 DLH per unit of product
Normal Capacity
:
10,000 direct labour worker hours
Units produced, June 19x1
:
22,000
Direct labour worker hours worked, June 19x1: 10,700
Standard factory overhead rates are based on direct labour hours.
Actual overhead incurred amounting
$191,000.
Required: Prepare a factory overhead variance analysis (three variances) for June 19x1.
P – 19 A company operates a standard costing system and showed the following data for the
month of March 19x9.
Particulars
No. of working days
Man hours
Overhead rate per hour
Hour per unit of output
Budgeted fixed overhead
No. of units produced
Actual overhead incurred
Actual Budgeted
22
20
4,300
4,000
–
Re. 0.50
–
10
– Rs. 1,800
425
–
Rs. 2,100
–
Required: Calculate overhead three variances using three variance formulas.
6