The following standard overhead costs were developed for one of the products of
ID: 2372580 • Letter: T
Question
The following standard overhead costs were developed for one of the products of Mildey Company:
variable overhead: 6 hours x $6 per hour 36.00
fixed overhead: 6 hours x $16 per hour 96.00
total standard overhead cost per unit 136.00
the following information is available regarding the company's actual operations for the period:
units produced 22,000
direct labor 105,000 hours
overhead incurred:
variable $446,500
fixed $1,375,000
budgeted fixed overhead for the period and the standard fixed overhead rate is ased on a denominator activity of 120,000 direct labor hours.
A. calculate the variable overhead spending variance and indicate whether it is favorable or unfavorable.
b. calculate the variable overhead efficiency variance and indicate whether it is favorable or unfavorable.
c. calculate the fixed overhead budget variance and indicate whether it is favorable or unfavorable.
d. calculate the fixed overhead volume variance and indicate whether it is favorable or unfavorable.
Explanation / Answer
A. $183,500F
Variable overhead spending variance = actual overhead costs - (standard rate X actual hours of labor used)
= $446,500 – ($6/hour * 105,000hours) = $183,500F (actual < expected so Favorable)
B. $162,000F
Variable overhead efficiency variance = (actual labor-hours - standard labor-hours allowed for actual production) X standard variable overhead rate.
= (105,000hours – 132,000hours) *$6/hour = $162,000F (actual labor hours < estimated labor hours = favorable)
Standard labor-hours allowed for actual production = 22,000 units * 6 hours/unit = 132,000 hours
C. Fixed overhead budget variance = $305,000F
Fixed overhead spending variance = actual overhead costs - (standard rate X actual hours of labor used) = $1,375,000 – ($16/hour *105,000hours) = $305,000F
D. Fixed overhead efficiency variance = $432,000F
Fixed overhead efficiency variance = (actual labor-hours - standard labor-hours allowed for actual production) X standard fixed overhead rate.
= (105,000hours – 132,000hours) * $16/hour = $432,000F
Standard labor-hours allowed for actual production = 22,000 units * 6 hours/unit = 132,000 hours