Question

Consider the following results for one month:

                                                Actual              Standard overhead applied    Total variance

Machine hours                        3,000                 3,100                                                                         

Variable overhead                  $4,200               3,100 @ $1.20 = $3,720        $480 U

Fixed overhead                      $4,300               3100 @ $1.20 = $3,720         $580 U

Required:

1. Calculate the efficiency and spending variances for variable overhead.
2. Calculate budget and volume variances for fixed overhead costs (normal hours for the month are 3,500)

Answer 1

A.

Actual Hours =3,000

Actual Varible Overhead Rate = $1.4 per labour hour ($4,200/3000)

Standard Hour = 3,100

Standard Varible Overhead Rate = $1.2

Variable Overhead Spending Variance = Actual Hours ( Standard VOH Rate- Actual VOH rate)

= 3000($1.2 -$1.4) = 3000*$0.2 = $600 Unfavourable

Variable Overhead Efficiency Variance = Standard Variable Overhead Rate(Standard Hour-Actual Hour)

= $1.2 (3,100-3,000) = $1.2*100 = $120 Favourable

B. Actual Fixed Overhead Rate = $1.433 ($4,300/3,000)

Fixed Overhead Expenditure Variance= Budgeted Fixed Overhead Cost - Actual Fixed Overhead Cost

= 3,500 Hour*$1.2 - $4,300 = $100 Unfavourable

Fixed Overhead Volume Variance = Standard Fixed Overhead Rate(Standard Hour - Budgeted Hour)

= $1.2 (3,100- 3,500) = $1.2*400 = $480 Unfavourable