1. 11 Flexible Budgets and Overhead Analysis Chapter  See Chapter 10 notes for a discussion of the flexible budget  For a manufacturing firm, the flexible budget is based on standard quantities and prices  In this chapter, we take a closer look at manufacturing overhead variances

2. Actual Spending Variance Act Input x Budg Price Efficiency Variance Flexible Budget 7800 units 240,600 320,000 $1,277,600 4,010 F 43,410 U $27,980 U 6,600 U -- $75,000 U Manuf OH Variable Fixed CG Manuf 236,590 363,410 $1,305,580 40,100 hrs $5.90 DL- input VOH - rate 7800 units 234,000 320,000 $ 547,787 39,000 hrs $6.00 7800 units 40,100 hrs $6.00 What might explain the price & usage variances? Variance Analysis from Chapter 10

3. VMOH Efficiency Variance $ 4,010 F $ 6,600 U VMOH Spending Variance FMOH Efficiency Variance $43,410 U ---- FMOH Spending Variance Possible Causes of Variances

4. Production Volume Variance Allocating Manufacturing Overhead Actual DLHxBudgeted rate Some firms allocate overhead based on actual activity. VOH 40,100 DLHx$6 / DLH=$240,600 Act unitsxStnd DLH/unitxBudg rate Other firms allocate overhead based on standard amount of activity per unit. 7,800x5 hrs / unitx$6 / DLH=$234,000 VMOH 7,800x5 hrs / unitx$8 / DLH=$312,000 FMOH

5. 7,800x5 hrs / unitx$6 / DLH=$234,000 VMOH 7,800x5 hrs / unitx$8 / DLH=$312,000 FMOH  VMOH allocated is the same as the flexible budget  never a production volume variance for VMOH Production Volume Variance  allocated less than budgeted because actual production volume was less than expected  Production volume variance: $320,000 - $312,000 = $8,000 U