INITIAL BUDGET INFORMATIONOur initial plan was to make and sell $500$ wrenches. We budgeted $2$ lbs$.$ of steel for each wrench,and expected to pay $$1\mathrm{.}50$ per pound for the steel. We budgeted $$20$ per hour for labor, and expected it to take$3$ hours to make each tool. Our initial plan was to sell the $500$ wrenches for $$120$ each.We budgeted $$8000$ for insurance $($fixed overhead$),$ and we decided to use labor hours as the driver forallocating utilities costs $($variable overhead$).$ We expected to have $$12,000$ in utilities costs.FLEXIBLE BUDGETPrepared after$-$the$-$fact, using actual quantity of sales, and the Variable OH Application rate determined with Master Budget.

ACTUAL RESULTS$(1)$ We receive an order for $550$ units at $$125\mathrm{.}00$ each$(2)$ We purchase $1,400$ lbs$.$ of materials., paying $1,960\mathrm{.}00,$ or $$1\mathrm{.}40$ per lb$.(3)$ We drawdown $1250$ lbs$.$ materials to produce $550$ wrenches $.(4)$ We drawdown $($pay$)$ $$21\mathrm{.}00$ hr$.$ for $1640$ hours of labor to produce the $550$ wrenches.$(5)$ We incur variable overhead expenses $($ex$.-$ utilities$)$ of $$11,890\mathrm{.}00.(6)$ Fixed overhead $($insurance$)$costs are $$7,800.$ Fixed overhead is deemed to be a period expense.$(7)$ We sell all $550$ units at $$125$ each.

PART TWO: For Part Two of this problem, you are required to complete an analysis of variance, breaking Total Variance into its various elements,which are identified on the provided $($two$)$ variance worksheets,

SPENDING $($OR "COST"$)$ VARIANCES CALCULATION SHEET

GENERALIZED MODEL FOR ALL VARIABLE COST VARIANCES $($Mtls$,$ Labor, Var. OH$)$

$(1)$

$(2)$

$(3)$

Actual Qty of Input

Actual Qty of Input

Standard Qty of Input

at Actual Price:

at Standard Price:

at Standard Price:

$($AQ x AP$)$

$($AQ x SP$)$

$($SQ x SP$)$

Note: Numbers appearing below in parenthesis refer to above boxes.

Combined Spending $($or "Cost"$)$ Variance

$(1)-(3)$

Price Variance Portion

Quantity Variance Portion

$(1)-(2)$

$(2)-(3)$

Materials

Price Variance Portion

Quantity Variance Portion

$(1)-(2)$

$(2)-(3)$

$($AQ x AP$)-($AQ x SP$)=($AP $-$ SP$)($AQ$)$

$($AQ x SP$)-($SQ x SR$)=($AQ $-$ SQ$)($SP$)$

$($AP $-$ SP$)($AQ$)$

$($AQ $-$ SQ$)($SP$)$

Labor

Price $("$Rate$")$ Variance

Quantity $("$Efficiency$")$ Variance

$(1)-(2)$

$(2)-(3)$

$($AH x AR$)-($AH x SR$)=($AR $-$ SR$)($AH$)$

$($AH x SR$)-($SH x SR$)=($AH $-$ SH$)($SR$)$

$($AR $-$ SR$)($AH$)$

$($AH $-$ SH$)($SR$)$

Variable Overhead $($assuming Labor Hours is Driver$)$

Price $("$Spending$")$Variance

Quantity $("$Efficiency$")$ Variance

$(1)-(2)$

$(2)-(3)$

$($AH x AR$)-($AH x SR$)=($AR $-$ SR$)($AH$)$

$($AH x SR$)-($SH x SR$)=($AH $-$ SH$)($SR$)$

$($AR $-$ SR$)($AH$)$

$($AH $-$ SH$)($SR$)$

Note: This formulation for overhead variances may differ from textbook

formulas, but resulting answers are identical. Take your pick!

Also, remember the hours and rates relate to the OH driver!

FIXED COSTS OVERHEAD VARIANCE

We do one variance for fixed costs overhead: the Spending Variance, which

is the difference between the planned costs and actual costs.