Meal Delivery Fast (MDF) operates a meal home-delivery service. It has agreement
ID: 2534573 • Letter: M
Question
Meal Delivery Fast (MDF) operates a meal home-delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax orders to MDF. MDF allocates variable and fixed overhead costs on the basis of delivery time. MDF's owner, Jason Clark, obtains the following information for May 2014 overhead costs: EEB (Click the icon to view the information.) Requirements 1. Compute spending and efficiency variances for MDF's variable overhead in May 2014. 2. Compute the spending variance and production-volume variance for MDF's fixed overhead in May 2014. 3. Comment on MDF's overhead variances and suggest how Jason Clark might manage MDF's variable overhead differently from its fixed overhead costs.Explanation / Answer
Answer: Requirement 1 Calculating the following amount of variable overhead Actual cost incurred Actual input x Budgeted rate Flexible Budget Variable OH $ 11,320 $ 9,905 $ 10,535 (5660*1.75) (8600*0.7*1.75) Now computation of spending and effiency variance Spending Variance Efficiency Variance Variable OH $ 1,415 U $ 630 F (11,320-9,905) (10,535-9,905) Requirement 2 Fixed OH cost per hour of delivery time is calculated as follows: Fixed cost / Hours of delivery =Fixed OH cost per hour of delivery time $ 36,400 7280 $ 5 Next calculation of amount of fixed overhead Actual cost incurred Same budgeted lump sum regardless of level of output Allocated overhead Fixed OH $ 39,200 $ 36,400 $ 28,300 (5660*$5) Next computation of spending and Production Volume variance Spending Variance Production-Volume Variance Fixed OH $ 2,800 U $ 8,100 U (39,200-36,400) (36,400-28,300) Requirement 3 a Unfavourable b Unfavourable c Expense d Favourable e Efficient f 0.66 Hours (5660/8600) g Fixed OH h Variable OH i Unfavourable j Fixed