static and flexible budgets Assignment -2 M32064 – Manufacturing System Design CSC72003 Assignment 2

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Chapter 11 Questions
Review Questions
11.1 Distinguish between static and flexible budgets and explain the advantages of using a flexible
budget for control, compared with using a static budget. LO 11.1
11.7 Explain the meaning of the variable overhead efficiency variance. LO 11.5
11.8 Define the fixed overhead budget variance, and explain how it may assist managers to control
costs. LO 11.5
Exercises
E11.22 Straightforward calculation of overhead variances: manufacturer LO 11.5
The data below relate to Sporty Ltd, a manufacturer of exercise equipment, for August:
Standard variable overhead rate
$27 per machine hour
Standard quantity of machine hours
2 hours per unit of output
Budgeted fixed overhead
$270 000
Budgeted output
15 000 units
Actual output
13 500 units
Actual variable overhead
$757 350
Actual fixed overhead
$274 500
Actual machine time
29 700 machine hours
Required:
Calculate the following variances, indicating whether each variance is favourable
or unfavourable:
1. variable overhead spending variance
2. variable overhead efficiency variance
3. fixed overhead budget variance
4. fixed overhead volume variance.
1
E11.25 Overhead variances: manufacturer LO 11.5
Zapp Ltd is a manufacturer of electrical switches, and uses a standard costing system.
The standard manufacturing overhead costs per switch are based on direct labour hours
and are as follows:
Variable overhead (5 hours @ $36 per hour)
$180
Fixed overhead (5 hours @ $54 per hour)*
270
Total overhead
$450
* Based on capacity of 300 000 direct labour hours per
month. The following information is available for October:
▪ 56 000 switches were produced, although 60 000 switches were budgeted.
▪ 275 000 direct labour hours were worked at a total cost of $11 475 000.
▪ Variable overhead costs were $10 530 000.
▪ Fixed overhead costs were $16 875 000.
Required:
Calculate the variable overhead spending and efficiency variances and the fixed overhead
budget and volume variances for October. Indicate whether each variance is favourable or
unfavourable.
E11.29 (appendix) Sales variances: manufacturer LO 11.11
Moreton Surf manufactures boogie boards. The company’s performance report for
January is as follows:
Actual
Budget
Boogie boards sold
6 000
8 000
Sales revenue
$480 000
$
600 000
Variable costs
290 000
360 000
Contribution margin
$190 000
$
240 000
Fixed costs
168 000
160 000
Operating profit
$ 22 000
$
80 000
The company uses a flexible budget to analyse its performance and to measure the effect
of various factors on the difference between budgeted and actual operating profit.
Required:
Calculate the sales price and sales volume variances for January, and indicate whether
each is favourable or unfavourable.

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