Alan Collins (V2.1)

Alan Collins (V2.1): (Adapted with permission of CMA Canada) Alan Collins is a forensic accountant and has been hired by the Widget Department of the Global Corporation. A disgruntled cost accountant in the administrative area within the Widget Department broke a water main that destroyed certain computer files. Management has been gathering data from whatever source possible. It is hoped that Alan's work can be used as a template for staff in the future. Here is what management has passed on to Alan: Each widget requires a standard direct labor input of 5.75 hours per unit. Total (combined variable and fixed) overhead is applied to production using a standard (predetermined) amount per direct labor hour. The balance of the Factory Overhead Control Account is written off to Cost of Goods Sold at the end of every month. The following analysis for November and December: . December . . November .

Actual total (V & F) overhead $ 658,711 $ 670,600

Standard direct labor hours allowed 22,425 hours 24,150 hours Overhead Variances:

Price/spending (V & F) $ 289 Favorable $ 4,400 Favorable

Efficiency $ 3,400 Favorable $ 1,200 Favorable

Production Volume (denominator) $ 12,075 Unfavorable $ 24,150 Favorable

Total Variance $ 8,386 Unfavorable $ 29,750 Favorable

The Widget division produced 4,100 units in January, used 24,000 hours at a variable cost of $8.10 per hour and incurred a total overhead cost of $ 676,900. It is now the beginning of February. Alan has been asked (by management) to prepare an analysis of total overhead costs for January. REQUIRED: Prepare a report to management including the following information: 1) The standard combined variable and fixed overhead application rate.

2) The variable and fixed portions of the above noted predetermined overhead rate.

3) The numerator and denominator amounts used in the calculation of the overhead rates.

4) An analysis of January's operations including:

a) The balance of the Factory Overhead Control Account before adjustment. b) The Flexible Budget for overhead in January. c) A complete list and explanation of overhead variances for January.