Variance Analysis on a Responsibility Basis —The data, steps, and methods presented below are based on the illustration in the previous chapter. There the annual factory overhead of four producing departments and four service departments was estimated, and product costing rates (factory overhead rates) were calculated after the indirect departmental expenses and service department costs had been apportioned and distributed. At the end of the year annual actual factory overhead was compared with applied factory overhead, and departmental spending and idle capacity variances were determined.
At this point the variance analysis moves into a monthly comparison. In order to keep the illustration compact, the four producing departments and only one service department. Utilities, are used. Some of the data previously presented must now be modified to serve this control responsibility phase.
For product costing purposes, four departmental factory overhead rates have been computed and are listed below.
Cutting department S2.00 per direct labor hour
Planing department $3.20 per machine hour
Assembly department 60% of direct labor cost
Upholstery department $1.80 per direct labor hour
Floor space data remain the same as shown on page 259 of the previous chapter. Based on the actual production and cost data, the cost department would apply the following amounts of factory overhead to the products passing through the four departments
Cutting department = 3,046 direct labor hours X $2.00 = 56,092
Planing department = 1,620 machine hours X $3.20 = $5,184
Assembly department = $11,400 direct labor cost X 60% = $6,840
Upholstery department = 4,100 direct labor hours X $1.80 = $7,380
If it is planned to determine the amount of over- or under-applied factory overhead, service department costs would have to be added to the actual direct and indirect departmental overhead to put actual and applied figures on a comparable basis. Variance Analysis on a Responsibility Basis should be a regular practice.
