{"id":547,"date":"2018-04-18T15:44:21","date_gmt":"2018-04-18T15:44:21","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&#038;p=547"},"modified":"2024-04-29T17:23:01","modified_gmt":"2024-04-29T17:23:01","slug":"variable-manufacturing-overhead-rate-variances","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/variable-manufacturing-overhead-rate-variances\/","title":{"raw":"Variable Manufacturing Overhead Rate Variances","rendered":"Variable Manufacturing Overhead Rate Variances"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>\r\n<div id=\"formula-bar\" class=\"formulabar-disabled\">\r\n<div id=\"t-formula-bar-input-container\">\r\n<div dir=\"ltr\">\r\n<div id=\"t-formula-bar-input\" spellcheck=\"false\" aria-hidden=\"true\">Analyze the variance between expected variable manufacturing overhead efficiency and actual variable manufacturing overhead efficiency<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div><\/li>\r\n<\/ul>\r\n<\/div>\r\nIn our previous discussion, we talked about how even if the price of a component of our variable manufacturing overhead is higher, it <strong>might<\/strong> actually cause our spending variance to be favorable. Sometimes, higher quality of input creates such a time savings that it is a good thing. Of course the opposite could be true. Remember back when we talked about direct labor and direct materials, cheaper is not always better. If a savings on one component of our costs causes additional costs in another area, we need to examine what the best course of action would be. So let\u2019s go back to Mary at Hupana and her new needles and thread!\r\n\r\nSo now, what happens if Mary notices that the needles and thread we are buying, even though they cost more, are actually creating better efficiency, thus lowering the time it takes to make our amazing shoes? \u00a0She has been doing a time tracking system, and noticed that rather than 1025 hours that were budgeted, it is now only taking 928 hours to make the same number of shoes! This is awesome news, so let\u2019s see what the numbers look like.\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50%; height: 15px;\"><\/td>\r\n<th style=\"width: 50%; height: 15px;\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Budgeted direct labor hours<\/th>\r\n<td style=\"width: 50%; height: 15px;\">928<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Variable manufacturing\u00a0overhead rate<\/th>\r\n<td style=\"width: 50%; height: 15px;\">$3.25<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Variable manufacturing overhead<\/th>\r\n<td style=\"width: 50%; height: 15px;\">$3,016.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nSo remember our budgeted amount of variable manufacturing overhead was 1025 hours at $3 per hour for a total cost of $3075. Let\u2019s analyze the change.\r\n<ul>\r\n \t<li>Actual Hours of Input at Actual Rate = 928 \u00d7 $3.25= $3016<\/li>\r\n \t<li>Actual Hours of Input at Standard Rate = 928 \u00d7 $3= $2784<\/li>\r\n \t<li>Standard Hours of Input allowed for Actual Output at Standard Rate= 1025 \u00d7 $3= $3075<\/li>\r\n<\/ul>\r\nSo with that information the <strong>price variance<\/strong>\u00a0can be calculated as follows:\r\n<ul>\r\n \t<li>Actual Hours of Input at Actual Rate= \u00a0$3016<\/li>\r\n \t<li>Actual Hours of Input at Standard Rate= $2784<\/li>\r\n \t<li>So we have a PRICE variance of $3016\u00a0\u2212 $2784= $232 <strong>unfavorable<\/strong> (we spent <strong>more<\/strong> per hour than budgeted)<\/li>\r\n<\/ul>\r\nBut look at the\u00a0<strong>efficiency<\/strong> variance:\r\n<ul>\r\n \t<li>Actual Hours of Input at Standard Rate = $2784<\/li>\r\n \t<li>Standard Hours of Input Allowed for Actual Output at Standard Rate= $3075<\/li>\r\n<\/ul>\r\nSo we have an\u00a0<strong>efficiency<\/strong> variance of $3075 \u2212 $2784= \u00a0$291\u00a0<strong>favorable<\/strong> (We spent <strong>less<\/strong> total that we budgeted)\r\n\r\nOur overall <strong>spending variance<\/strong> can then be calculated at $3075\u00a0\u2212 $3016= $59\u00a0<strong>favorable<\/strong>.\r\n\r\nSo the takeaway here is, the product may <strong>cost<\/strong> more, but if it increases <strong>efficiency\u00a0<\/strong>the extra cost may be worth it! The cheapest product does not always bring us the best outcome!\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/876b2220-7730-4b5e-a555-295adb6ab31c\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>\n<div id=\"formula-bar\" class=\"formulabar-disabled\">\n<div id=\"t-formula-bar-input-container\">\n<div dir=\"ltr\">\n<div id=\"t-formula-bar-input\" spellcheck=\"false\" aria-hidden=\"true\">Analyze the variance between expected variable manufacturing overhead efficiency and actual variable manufacturing overhead efficiency<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/li>\n<\/ul>\n<\/div>\n<p>In our previous discussion, we talked about how even if the price of a component of our variable manufacturing overhead is higher, it <strong>might<\/strong> actually cause our spending variance to be favorable. Sometimes, higher quality of input creates such a time savings that it is a good thing. Of course the opposite could be true. Remember back when we talked about direct labor and direct materials, cheaper is not always better. If a savings on one component of our costs causes additional costs in another area, we need to examine what the best course of action would be. So let\u2019s go back to Mary at Hupana and her new needles and thread!<\/p>\n<p>So now, what happens if Mary notices that the needles and thread we are buying, even though they cost more, are actually creating better efficiency, thus lowering the time it takes to make our amazing shoes? \u00a0She has been doing a time tracking system, and noticed that rather than 1025 hours that were budgeted, it is now only taking 928 hours to make the same number of shoes! This is awesome news, so let\u2019s see what the numbers look like.<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50%; height: 15px;\"><\/td>\n<th style=\"width: 50%; height: 15px;\" scope=\"col\">Total<\/th>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Budgeted direct labor hours<\/th>\n<td style=\"width: 50%; height: 15px;\">928<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Variable manufacturing\u00a0overhead rate<\/th>\n<td style=\"width: 50%; height: 15px;\">$3.25<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Variable manufacturing overhead<\/th>\n<td style=\"width: 50%; height: 15px;\">$3,016.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>So remember our budgeted amount of variable manufacturing overhead was 1025 hours at $3 per hour for a total cost of $3075. Let\u2019s analyze the change.<\/p>\n<ul>\n<li>Actual Hours of Input at Actual Rate = 928 \u00d7 $3.25= $3016<\/li>\n<li>Actual Hours of Input at Standard Rate = 928 \u00d7 $3= $2784<\/li>\n<li>Standard Hours of Input allowed for Actual Output at Standard Rate= 1025 \u00d7 $3= $3075<\/li>\n<\/ul>\n<p>So with that information the <strong>price variance<\/strong>\u00a0can be calculated as follows:<\/p>\n<ul>\n<li>Actual Hours of Input at Actual Rate= \u00a0$3016<\/li>\n<li>Actual Hours of Input at Standard Rate= $2784<\/li>\n<li>So we have a PRICE variance of $3016\u00a0\u2212 $2784= $232 <strong>unfavorable<\/strong> (we spent <strong>more<\/strong> per hour than budgeted)<\/li>\n<\/ul>\n<p>But look at the\u00a0<strong>efficiency<\/strong> variance:<\/p>\n<ul>\n<li>Actual Hours of Input at Standard Rate = $2784<\/li>\n<li>Standard Hours of Input Allowed for Actual Output at Standard Rate= $3075<\/li>\n<\/ul>\n<p>So we have an\u00a0<strong>efficiency<\/strong> variance of $3075 \u2212 $2784= \u00a0$291\u00a0<strong>favorable<\/strong> (We spent <strong>less<\/strong> total that we budgeted)<\/p>\n<p>Our overall <strong>spending variance<\/strong> can then be calculated at $3075\u00a0\u2212 $3016= $59\u00a0<strong>favorable<\/strong>.<\/p>\n<p>So the takeaway here is, the product may <strong>cost<\/strong> more, but if it increases <strong>efficiency\u00a0<\/strong>the extra cost may be worth it! The cheapest product does not always bring us the best outcome!<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_876b2220-7730-4b5e-a555-295adb6ab31c\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/876b2220-7730-4b5e-a555-295adb6ab31c?iframe_resize_id=assessment_practice_id_876b2220-7730-4b5e-a555-295adb6ab31c\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-547\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Variable Manufacturing Overhead Rate Variances. <strong>Authored by<\/strong>: Freedom Learning Group. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":62559,"menu_order":17,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Variable Manufacturing Overhead Rate Variances\",\"author\":\"Freedom Learning Group\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"868450ab-4cd0-4473-a6af-6594e730389b, 4da88fcc-cf58-4c9e-8438-7e3338f8461b","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-547","chapter","type-chapter","status-publish","hentry"],"part":109,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/547","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/62559"}],"version-history":[{"count":10,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/547\/revisions"}],"predecessor-version":[{"id":4133,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/547\/revisions\/4133"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/109"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/547\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=547"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=547"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=547"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=547"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}