Sedona Company set the following standard costs for one unit of its product for

Question

Sedona Company set the following standard costs for one unit of its product for 2017.

The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.

AH = Actual Hours
SH = Standard Hours
AVR = Actual Variable Rate
SVR = Standard Variable Rate
SFR = Standard Fixed Rate

Direct material (20 Ibs. @ $2.50 per Ib.) $ 50.00 Direct labor (10 hrs. @ $22.00 per hr.) 220.00 Factory variable overhead (10 hrs. @ $4.00 per hr.) 40.00 Factory fixed overhead (10 hrs. @ $1.60 per hr.) 16.00 Standard cost $ 326.00 1. Compute the variable overhead spending and efficiency variances. Actual Variable OH Cost Flexible Budget Standard Cost (VOH applied) SH AH AVR AH SVR SVR Vari able overhead spending variance Variable overhead efficiency variance Total variable overhead cost variance Unfavorable 0Favorable Favorable 2. Compute the fixed overhead spending and volume variances and classify each as favorable or unfavorable. (Round "Rate per unit" to 2 decimal places.) Actual Fixed OH cost Fixed OH (Fixed Budgeted) Standard Cost (FOH applied) SH SFR Fixed overhead spending variance Fixed overhead volume variance Total fixed overhead cost variance O Unfavorable Unfavorable nfavorable

Explanation / Answer

1 Spending Variance =Actual Hours *( Actual Rate -Standard Rate )           99,586 Actual Variable Cost Standard Variable Cost AH * AVR AH * SVR 340000                5.89 340000           5.60 total    2,003,600.00 total Efficiency Variance= Std Rate*( Actual Hours-Stand Hrs) -196000 Actual Variable Cost Standard Variable Cost AH * SR SH * SR 340000                5.60 375000           5.60 total    1,904,000.00 total Variable Cost Variance (96,400.00) Favourable 2 Fixed Overhead Spending Variance Actual fixed overhead - Budgeted fixed overhead = Fixed overhead spending variance 628600 - 600000 28600 Unfavourable Fixed Overhead Volume Variance Actual Units ( SH -Act Rate) 628600 544000 84600 Unfavourable TOTAL Fixed Cost Variance 113200 Unfavourable 3 Controllable Variance FO Spending Variance 28600 Unfavourable Variable Overhead Spending Variance              99,586 Unfavourable Variable Overhead Efficiency Variance (196,000.00) favourable -67814 favourable

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