Question

The data related to Shunda Enterprises Inc.’s factory overhead cost for the production of 20,000 units of product are as follows:

Actual:	Variable factory overhead	$104,000
	Fixed factory overhead	74,500
Standard:	30,000 hrs. at $6 ($3.50 for variable factory overhead)	180,000

Productive capacity at 100% of normal was 29,100 hours, and the factory overhead cost budgeted at the level of 30,000 standard hours was $178,900. Based on these data, the chief cost accountant prepared the following variance analysis:

Variable factory overhead controllable variance:
Actual variable factory overhead cost incurred	$104,000
Budgeted variable factory overhead for 30,000 hours	105,000
Variance—favorable			$(1,000)
Fixed factory overhead volume variance:
Normal productive capacity at 100%	29,100	hrs.
Standard for amount produced	30,000
Productive capacity not used	900	hrs.
Standard variable factory overhead rate	x $6
Variance—unfavorable			5,400
Total factory overhead cost variance—unfavorable			$4,400

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.

Variable Factory Overhead Controllable Variance	$?	Favorable
Fixed Factory Overhead Volume Variance	$?	Favorable
Total Factory Overhead Cost Variance	$?

Answer 1

Hear Calculation of Variable factory overhead controllable variance is right But for calculation of Fixed factory overhead is wrong because.Here you should have used only the rate of fixed overhead Not the total variance.

Total overhead rate = 6$

Variable overhead rate = 3.5$

Fixed overhead rate = 6 - 3.5 = 2.5$ per hour

1) Variable factory overhead controllable variance = Standard variable overhead - Actual variable overhead

= (Standard hours * Standard rate of variable overhead ) - actual overhead

= (30000hours*3.5$) – 1,04,000$ = (1000$) Favourable

2) Fixed factory overhead volume variance = Absorption rate of fixed overhead * ( Standard hours - Budgeted Hours)

= 2.5$ ( 30,000hours – 29,100hours) = (2,250$) favourable

3) Total factory overhead cost variance = Variable Factory Overhead Controllable Variance + Fixed Factory Overhead Volume Variance

1,000 + 2,250 = (3,250$) Favourable