Problem 17-33 Nonmanufacturing Cost Variances (LO 17-5) Springfield Bank origina
ID: 2474462 • Letter: P
Question
Problem 17-33 Nonmanufacturing Cost Variances (LO 17-5) Springfield Bank originates mortgage loans for residential housing. The company charges a service fee for processing loan applications. This fee is set twice a year based on the cost of processing a loan application. For the first half of this year, the bank estimated that it would process 230 loans. Correspondence, credit reports, supplies, and other materials that vary with each loan are estimated to cost $60.50 per loan. The company hires a loan processor at an estimated cost of $85,000 per year and an assistant at an estimated cost of $55,000 per year. The cost to lease office space and pay utilities and other related costs is estimated to be $139,000 per year. During the first six months of this year, Springfield Bank processed 250 loans. Cost of materials, credit reports, and other items related to loan processing were 12 percent higher than expected for the volume of loans processed. The loan processor and her assistant cost $70,500 for the six months. Leasing and related office costs were $65,500 for the six months.
Required: Compute the variances for Springfield Bank. (Hint:Loans are the output.) (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round your intermediate calculations. Round your final answer to the nearest dollar amount.)
Explanation / Answer
Fixed overhead variance = Actual fixed overhead - Budgeted fixed overhead
As per the given information, Fixed overhead's are: fee for loan processor, fees paid to the assistant and amount paid to office space and rtilities.
Actual fixed overhead for 1st 6 months = $70,500 + $65,500 = $136,000
Budgeted fixed overhead for 1st 6 months = $85,000 * 6 / 12 + $55,000 * 6 /12 + $139,000 * 6/12
=42,500 + 27,500 + 69,500 = $139,500
Threfore, Fixed overhead variance rate = Actual fixed overhead - Budgeted fixed overhead
= $136,000 - $139,500 = $3,500 F
Variable overhead variance = Actual Variable cost - Budgeted Variable cost for actual Quantity
here, we know the Budgeted Variable cost for actual Quantity = Actual quantity * Budgeted cost
=250 * $60.50 = $15,125
Actual Variable cost ( given as 12% highher than the expected) = Actual quantity * Actual cost
= 250 * (60.50 + 12%)
=250 * 67.76 = $16,940
Therefore, Variable overhead variance = Actual Variable cost - Budgeted Variable cost for actual Quantity
= $16,940 - $15,125 = 1,815 U