Page 161 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS
P. 161
Management Control Systems
Notes Illustration: The following shows the flexible budget for variable and fixed factory overheads
for anticipated monthly volume range:
Standard machine hours allowed 800 900 1000 1100
Variable factory overhead:
Machine adjustments and repairs ` 8000 ` 9000 ` 10,000 ` 11000
Idle time 800 900 1000 1100
Rework 800 900 1000 1100
Overtime premium 400 450 500 550
Supplies 3600 4050 4500 4950
13600 15300 17000 18700
Fixed Factory Overhead:
Supervision 2700 2700 2700 2700
Depreciation plant 1000 1000 1000 1000
Depreciation equipment 15000 15000 15000 15000
Property taxes 1000 1000 1000 1000
Insurance factory 300 300 300 300
20000 20000 20000 20000
A team of operating personnel and accountants jointly decided that machine hours was the
principal cost driver and based on denominator volume of 1,000 machine hours, the budgeted
variable application rate of ` 17 per hour was fixed. The team also selected a denomination
volume of 1,000 machine hours for setting the budgeting fixed OH application rate. Actual
factory overhead data for the month ended March 31, 19......... was as under:
Variable Overhead `. Fixed Overhead `
Machine adjustments & repairs 8200 Supervision 2700
Idle time 600 Depreciation – Plant 1000
Rework 850 Depreciation Equipment 15000
Overtime premium 600 Property Taxes 1150
Supplies 4000 Insurance – Factory 350
14250 20200
Total actual factory overhead 14,250 + 20,200 = ` 34,450.
The actual hours of inputs were 790. The standard time allowed per unit of production was 0.4
hour. There were 2,000 units of product manufactured. Compute Variance analysis of overheads.
Solution: The budgeted fixed factory overhead rate is ` 20,000 – 1,000 hours i.e., ` 20 per machine
hour.
Option A: If separate variable and fixed overhead are used for planning and control purposes.
Variable Overhead Variance = Actual Costs – Applied: Standard Inputs allowed for
Actual outputs × Budgeted Rate
Applied is basically the data provided by flexible budget for Actual Output (800 units)
= 14,250 – 800×17
= 650 A (under applied V. OH)
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