Costcon

Assignment 23

Lincoln Company applies overhead based on direct labor hours and has the following available
for the current month:
 

Standard:  

Direct labor hours per unit 6

Variable overhead per DLH P0.80

Fixed overhead per DLH  

 (based on 11,900 DLHs) P2.10

Actual:  

Units produced 2,000

Direct labor hours 11,900

Variable overhead P9,900

Fixed overhead P25,500

Required:
1.  Compute all the appropriate variances using the two-variance approach.
2.  Compute all the appropriate variances using the three-variance approach.
3.  Compute all the appropriate variances using the four-variance approach.

Answers:
1.  Compute all the appropriate variances using the two-variance approach.
Solution:
     Actual (P9,900 + P25,500)                                          P35,400
               Budget Variance:                                                                           P810 U
 
     BFOH (11,900 ' P2.10)                         P24,990
     VOH (2,000 ' 6 ' P0.80)                             9,600         P34,590
               Volume Variance:                                                                        P210 F
      Applied OH:
      (2,000 ' 6 ' P2.90)                                                         P34,800
 
2. Compute all the appropriate variances using the three-variance approach.
Solution:

Actual   P35,400  

    Spending Variance:     P890 U

Flexible Budget Based on Actual Input      

BFOH P24,990    

VOH (11,900 ´ P0.80)   9,520 P34,510  

    Efficiency Variance:     P80 F

Flexible Budget Based on Standard DLHs      

BFOH P24,990    

VOH (2,000 ´ 6 ´ P0.80)   9,600 P34,590  

    Volume Variance:     P210 F

Applied OH:      

(2,000 ´ 6 ´ P2.90)   P34,800

 
 3. Compute all the appropriate variances using the four-variance approach.
Solution:

Actual VOH   P9.900  

    Variable Spending Variance:     P380 F

Flex. Bud. Based on Actual      

Input Hours (11,900 ´ P0.80)   P9,520  

   Variable Efficiency Variance:     P80 F

Applied VOH      

 (2,000 ´ 6 ´ P0.80)   P9,600  

Actual FOH   P25,500  

    FOH Spending Variance:     P510 U

BUDGETED FOH   P24,990  

    FOH Volume Variance:     P210 F

Applied FOH      

 (2,000 ´ 6 ´ P2.10)   P25,200