Flexible Budgeting and Overhead Cost Control



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

|Expenses |Amounts |Cost at … Units |Cost at Units |

|Fixed: | | | |

|Salaries |xxxxxx xxxxxx |xxx((( |xxxxxx |

|Depreciation |xxxxxx |xxx((( |xxxxxx |

|Indirect labour | |xxxxxx |xxxxxx |

|Total |xxxxxx |xxx((( |xxxxxx |

|Variable: | | | |

|Direct materials |xxxxxx |xxx((( |xxxxxx |

|Direct labour |xxxxxx |xxx((( |xxxxxx |

|Total Cost | |((( |((( |

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 |Per unit Rs. |

|Material |70 |

|Labour |25 |

|Variable overhead |20 |

|Fixed overheads (Rs. 100,000) |10 |

|Variable expenses (direct) |5 |

|Selling expenses (10% fixed) |13 |

|Distribution expenses (20% fixed) |7 |

|Administration expenses (Rs. 50,000) |5 |

|Total cost of sale per unit |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%) |

|Direct material |Rs.37,800 |Rs. 44100 |

|Direct wages |16,200 |18,900 |

|Production overhead |37,600 |41,200 |

|Administration overhead |31,500 |31,500 |

|Selling and distribution overhead |42,300 |44,100 |

|Total cost |165,400 |179,800 |

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.

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

P –9. The compiled records of a company are as follows:

| |Budget |Actual |

|Outputs |10,000 |12,000 |

|Hrs. |5,000 |5,500 |

|Fixed overhead |Rs. 5,000 |Rs. 5,000 |

|Variable overhead |20,000 |27,500 |

Calculate the three overhead variances.

P – 10. The budgeted data for the Himalayan Company at 100 percent of capacity follows:

Direct labour hours 240,000

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 capacity 30,000 hours

Hours worked 32,000 hours

Hours produced 28,000 hours

Total overhead expenses Rs. 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 overhead Rs. 5 per DLH

Actual production in 28,000 DLH 48,000 units

Standard output per DLH 1.5 units

Actual manufacturing overhead paid Rs. 160,000

Required: Overhead three variances. (TU 2053)

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 expenses Rs.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 paid 21,000 hrs

Actual overhead cost incurred Rs. 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 |10,000 units |20, 000 units |

|Indirect materials |10,000 |20,000 |

|Indirect labour |20,000 |40,000 |

|Supervision |20,000 |30,000 |

|Heat, Light and Power |10,000 |15,000 |

|Maintenance cost |10,000 |15,000 |

|Depreciation cost |30,000 |30,000 |

|Total |100,000 |150,000 |

Additional Information:

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 |15,000 |25,000 |

|Flexible budget data: |($) |($) |

|Materials |30,000 |50,000 |

|Labour |45,000 |75,000 |

| |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 |Actual |Budgeted |

|No. of working days |22 |20 |

|Man hours |4,300 |4,000 |

|Overhead rate per hour |– |Re. 0.50 |

|Hour per unit of output |– |10 |

|Budgeted fixed overhead |– |Rs. 1,800 |

|No. of units produced |425 |– |

|Actual overhead incurred |Rs. 2,100 |– |

Required: Calculate overhead three variances using three variance formulas.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download