CMA Study Group

  • 1.  could you please help me

    Posted 10-04-2013 08:15 AM

    Could you please help for the calculation of 1.346.080 ?
    Thanks



    Study Unit 7: Cost and Variance Measures | Subunit 6: Overhead Variances
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    Fact Pattern: Patie Company uses a standard FIFO, process-cost system to account for its only product, Mituea. Patie has found that direct machine hours (DMH) provide the best estimate of the application of O/H. Four (4) standard direct machine hours are allowed for each unit. Using simple linear regression analysis in the form y = a + b(DMH), given that (a) equals fixed costs and (b) equals variable costs, Patie has developed the following O/H budget for a normal activity level of 100,000 direct machine hours:
    ITEM (y)
    a
    b
    Supplies
    $ 0.50
    Indirect Labor
    $ 54,750
    6.50
    Depreciation -- Plant and Equipment
    27,000
    Property Taxes and Insurance
    32,300
    Repairs and Maintenance
    14,550
    1.25
    Utilities
    3,400
    4.75
    Total O/H
    $132,000
    $13.00
    Actual fixed O/H incurred was $133,250, and actual variable O/H was $1,225,000. Patie produced 23,500 equivalent units during the year using 98,700 direct machine hours.
    Question: 14 What is the total O/H variance?
    Answer (D) is correct.
    The total O/H variance is the over- or underapplied O/H, that is, the difference between applied O/H and the actual O/H. The applied O/H was determined to be $1,346,080. The actual O/H is $1,358,250 ($133,250 + $1,225,000). Consequently, the amount of underapplied O/H is $12,170 U ($1,358,250 - $1,346,080).


  • 2.  RE:could you please help me

    Posted 10-04-2013 11:43 AM
    Good question, I tried to solve it for half an hour and I believe I come up with something:

    In order to find the total applied O/H, we need calculate the applied O/H rate per DMH. The budgeted O/H function can be written as O/H=132,000+13xDMH. Considering the budgeted normal capacity of 100,000 DMH, Fixed O/H rate per DMH is 1.32 (132,000/100,000). Therefore, total O/H rate applied = Fixed O/H Rate + Variable O/H Rate = 1.32 + 13 = 14.32$ per DMH.
    Actual produced quantiy is 23,500. It requires 94,000 DMH with budgeted rates (23,500 x 4). So, total applied O/H cost is 94,000 DMH x 14.32$ per DMH = 1,346,080$.

    BR.



    -------------------------------------------
    Yasin Duran CPA
    Director/Manager
    Istanbul
    Turkeyyasinduran@...
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  • 3.  RE:could you please help me

    Posted 10-04-2013 03:08 PM
    Hello Ozge,

    Total overhead variance compares actual factory overhead, both fixed and variable, spent during the period versus the total overhead applied to production.

    Almost always, you will find the actual factory overhead given in the problem, as in the case at bar.

    $   133,250 - actual fixed overhead
    $1,225,000 - actual variable overhead
    $1,358,250 - actual factory overhead incurred

    The trick then is finding out how applied factory overhead is calculated. Recall that you need to have two numbers to compute for this, i.e. (1) standard hours allowed based on actual output/production, and (2) standard factory overhead rate.

    Standard hours allowed: If the company produced 23,500 units, the production team was allowed to use 94,000 direct machine hours to comply with the standard of 4 machine hours  to produce one unit. Therefore, 23,500 X 4 = 94,000 machine hours.

    Standard factory overhead rate: The variable overhead rate was already given at $13.00. You are now tested if you can derive the standard fixed overhead rate, which is simply budgeted fixed OH ($132,000) divided by normal capacity hours of 100,000, or $1.32/hr.

    94,000 hrs - standard hours allowed based on actual output
    X)  $14.32 - standard factory overhead rate ($13.00 + $1.32)
    $1,346,080 - Applied factory overhead

    $1,358,250 - Actual FOH
    $1,346,080 - Applied FOH
    $     12,170 - unfavorable variance
     

    -------------------------------------------
    Angel Secerio CMA, CPA
    Director/Manager
    Insights Financial Review
    Makati
    Philippines
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