Question

Factory Overhead Variance Corrections

The data related to Shunda Enterprises Inc.’s factory overhead cost for the production of 40,000 units of product are as follows:

Actual:	Variable factory overhead	$247,600
	Fixed factory overhead	176,800
Standard:	61,000 hrs. at $7 ($4.10 for variable factory overhead)	427,000

Productive capacity at 100% of normal was 60,200 hours, and the factory overhead cost budgeted at the level of 61,000 standard hours was $424,400. Based on these data, the chief cost accountant prepared the following variance analysis:

Variable factory overhead controllable variance:
Actual variable factory overhead cost incurred	$247,600
Budgeted variable factory overhead for 61,000 hours	250,100
Variance—favorable			$(2,500)
Fixed factory overhead volume variance:
Normal productive capacity at 100%	60,200	hrs.
Standard for amount produced	61,000
Productive capacity not used	800	hrs.
Standard variable factory overhead rate	x $7
Variance—unfavorable			5,600
Total factory overhead cost variance—unfavorable			$3,100

Compute the following to assist you in identifying the errors in the factory overhead cost variance analysis. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your interim computations to the nearest cent, if required.

Variance	Amount	Favorable/Unfavorable
Variable Factory Overhead Controllable Variance	$	Favorable
Fixed Factory Overhead Volume Variance	$	Favorable
Total Factory Overhead Cost Variance	$	Favorable

Answer 1