Study Appendix 13. Consider the following data regarding factory overhead:

... Variable... Fixed
Budget for actual hours of input... $45,000... $70,000
Applied... 41,000... 64,800
Budget for standard hours allowed
for actual output achieved..?
Actual incurred... 48,500... 68,500

Using the above data, fill in the following blanks with the variance amounts. Use F for favorable or U for unfavorable for each variance.


... Total Overhead... Variable... Fixed
1. Spending variance... ______... _____... ______
3. Production-volume variance... ______... ______... ______
4. Flexible-budget variance... ______... ______... ______
5. Underapplied overhead... ______... ______... ______




Appendix 13: Comparisons of Production-Volume Variance with
Other Variances
The only new variance introduced in this chapter is the production-volume variance, which arises because fixed-overhead accounting must serve two masters: the control-budget purpose and the product-costing purpose. Let’s examine this variance in perspective by using the approach originally demonstrated in Exhibit 8-9. The results of the approach appear in Exhibit 13-11, which deserves your careful study, particularly the two footnotes. Please ponder the exhibit before reading on.

Exhibit 13-12 graphically compares the variable- and fixed-overhead costs analyzed in Exhibit
13-11. Note how the control-budget line and the product-costing line (the applied line) are superimposed in the graph for variable overhead but differ in the graph for fixed overhead.
Underapplied or overapplied overhead is always the difference between the actual overhead incurred and the overhead applied. An analysis may then be made:

Accounting Vocabulary

underapplied overhead = flexible-budget variance + production-volume variance

for variable overhead = $30,000+0=$30,000

for fixed overhead = $70,000+$100,000=$170,000

13-45 Variable and Absorption Costing
Chan Manufacturing Company data for 20X7 follow:


Sales: 12,000 units at $17 each
Actual production 15,000 units
Expected volume of production 18,000 units
Manufacturing costs incurred
Variable $120,000
Fixed 63,000
Nonmanufacturing costs incurred
Variable $24,000
Fixed 18,000

Determine operating income for 20X7, assuming the firm uses the variable-costing approach to
product costing. (Do not prepare a statement.)






Assume that there is no January 1, 20X7, inventory; no variances are allocated to inventory; and
the firm uses a “full absorption” approach to product costing. Compute (a) the cost assigned to
December 31, 20X7, inventory; and (b) operating income for the year ended December 31, 20X7.
(Do not prepare a statement.)