Exercise 7: Flexible Budget Analysis

Assume that the fixed factory overhead of Golden Manufacturers (exercise 5)

amounts to ₱ 120,000.
a. Variable factory overhead rate.
Budgeted factory overhead ₱ 470,500

Less: 120,000

Fixed factory overhead 360,000

Divided by: 60,000 hours

Variance Factory Overhead Rate ₱ 6.00

b. Budget allowance based on actual capacity

y= a + bx
y= 120,000 + 6 (58,000)
y= 120,000 + 348,000
y= 468,000

c. Spending variance
Actual factory overhead ₱ 470,500
Less:
Budgeted factory overhead 468,000
Spending variance
- unfavorable ₱ 2,500

d. Idle capacity variance

Budgeted factory overhead ₱ 468,000
Less:
Applies factory overhead
58,000 hours x ₱ 8 464,000
Idle capacity variance
- unfavorable ₱ 4,000

e. Alternative computation for spending and volume variances

Spending Variance:
Actual factory overhead – Fixed factory overhead ₱
(470,500 – 120,000) 350,500
Budgeted Allowance - Fixed factory overhead
(468,000 – 120,000) 348,000
Spending Variance - unfavorable ₱ 2,500

Idle Capacity Variance:

Budgeted Capacity 60,000 hours
Actual Capacity 58,000 hours
Difference 2,000
Multiply by: Fixed Factory Overhead Rate 2
Idle Capacity Variance - unfavorable ₱ 4,000