Question

Lamp Light Limited (LLL) manufactures lampshades. It applies variable overhead on the basis of direct labor hours. Information from LLL’s standard cost card follows:

	Standard Quantity	Standard Rate	Standard Unit Cost
Variable manufacturing overhead	0.6	$0.80	$0.48

During August, LLL had the following actual results:

Units produced and sold		23,700
Actual variable overhead	$	9,490
Actual direct labor hours		16,000

Lamp Light Limited (LLL) calculates a fixed overhead rate based on budgeted fixed overhead of $51,750 and budgeted production of 20,700 units. Actual results were as follows:

Number of units produced and sold		23,700
Actual fixed overhead	$	48,750

Required:
1. Calculate the fixed overhead rate based on budgeted production for LLL.

2. Calculate the fixed overhead spending variance for LLL.

3. Calculate the fixed overhead volume variance for LLL.

4. Calculate the over- or underapplied fixed overhead for LLL.

1. Fixed Overhead Rate // Per Unit

Fixed Overhead Rate

Per Unit

2 & 3

Fixed Overhead Spending Variance
Fixed Overhead Volume Variance

4.

Overapplied/Underapplied

Fix

Answer 1

1)	Fixed OH rate		=	Budgeted Fixed OH / Budgeted Production
			=	$ 51750 / 20700
			=	$      2.50	per unit

2)	Fixed OH Spending Variance			=	Budgeted Fixed OH - Actual Fixed OH
				=	$ 51750 - $ 48750
				=	$   3,000.00	(F)

3)	Fixed OH Volume Variance			=	Recovered Fixed OH - Budgeted Fixed OH
				=	($ 2.5 x 23700) - $ 51750
				=	$   7,500.00	(F)

4)	OH applied			=	$ 59,250.00	($ 2.5 x 23700)
	Actual OH			=	$ 48,750.00
	Overapplied			=	$ 10,500.00