EXERCISE 11-9 (15 MINUTES) NOTE

8,900

Formula

(per car)

Cars

Overhead Costs

Cars Variance

Variable overhead costs:

Cleaning supplies ... 0.80 7,080 7,120 40 F

Electricity ... 0.30 2,460 2,670 210 F

Maintenance ... 0.20 1,550 1,780 230 F

Total variable overhead cost... 1.30 11,090 11,570 480 F

Fixed overhead costs:

Operator wages ... 9,100 9,000 100 U

Depreciation ... 7,000 6,000 1,000 U

Rent... 8,000 8,000 0

Total fixed overhead cost ... 24,100 23,000 1,100 U

Total overhead cost ... 35,190 34,570 620 U

Students may question the variances for fixed costs. Operator wages can

differ from what was budgeted for a variety of reasons including an unan-

ticipated increase in the wage rate; changes in the mix of workers between

those earning lower and higher wages; changes in the number of operators

on duty; and overtime. Depreciation may have increased because of the

acquisition of new equipment or because of a loss on equipment that must

be scrapped—perhaps due to poor maintenance. (This assumes that the

loss flows through the depreciation account on the performance report.)

© The McGraw-Hill Companies, Inc., 2006. All rights reserved.

Solutions Manual, Chapter 11 653