Please explain all calculation Total fixed overhead volume variance. Total overh
ID: 2580114 • Letter: P
Question
Please explain all calculation
Total fixed overhead volume variance.
Total overhead efficiency variance.
Total variable overhead spending variance.
Asparagus Ltd., a successful Canadian company, is able to buy a new type of biodegradable plastic at a fixed price of $150 per roll. The plastic is then cut and sealed to make dry cleaning bags. Fixed factory overhead is estimated to be $506,000 per year. During this past year, 19,800 cartons of dry cleaning bags were actually produced; this represents 90% of the denominator activity level. The following information is also available:
Rolls of plastic used
60,000
Variable overhead incurred
$200,000
Rolls of plastic price variance
$0
Direct labour efficiency variance
$9,630 U
Fixed overhead spending (budget) variance
$5,000 F
Standard costs per carton of dry cleaning bags:
Labour costs @ $18 per hour
$27
Rolls of plastic
3 rolls
Total overhead
$32
Rolls of plastic used
60,000
Variable overhead incurred
$200,000
Rolls of plastic price variance
$0
Direct labour efficiency variance
$9,630 U
Fixed overhead spending (budget) variance
$5,000 F
Standard costs per carton of dry cleaning bags:
Labour costs @ $18 per hour
$27
Rolls of plastic
3 rolls
Total overhead
$32
Explanation / Answer
Direct labor hour per unit = $27/$18 = 1.5 hours
Rate of fixed overhead = $506,000 / [(19,800/.90) x 1.5] per DLHR = $15.3333 per DLHR
1. Total fixed overhead volume variance
= (Normal Direct labor hours - Direct labor hours applied) x Rate
= (33000 - 29700) x $15.3333
= $50600 U
2. Total overhead efficiency variance
Variable overhead rate = Total overhead - Total fixed overhead
= $32 - $23 = $9 per unit = $9/1.5 = $6 per DLHR
(AH - SH) x SVOR = Variable overhead efficiency variance
(30,235 DLHRS - 29,700 DLHRS) x $6 = Variable overhead efficiency variance
Variable overhead efficiency variance = $3,210 U
3. Total variable overhead spending variance
VOH applied = 29700 DLHRS x $6 = $178,200 + $3,210
181,410 - VOH incurred $200,000 (given) =
$18,590 U
Total variable overhead spending variance = $18,590 U