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		22,100
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 $60,300 and budgeted production of 20,100 units. Actual results were as follows:

Number of units produced and sold		22,100
Actual fixed overhead	$	58,300
a. Calculate the fixed overhead rate based on budgeted production for LLL. b.Calculate the fixed overhead spending variance for LLL. c.Calculate the fixed overhead volume variance for LLL. d. Calculate the over- or underapplied fixed overhead for LLL.

Answer 1

a. The fixed overhead rate = Budgeted fixed overhead / budgeted production = $60300 / 20100 units = $3 per unit
b. fixed overhead spending variance = Actual fixed overhead = budgeted fixed overhead = $58300 - $60300 = $2000 F
c. fixed overhead volume variance = Actual production at budgeted rate - budgeted fixed overhead
22100 * 3   - 60300 = 66300 - 60300 = $6000 U
d. the over- or underapplied fixed overhead = Applied fixed overhead - Actual fixed overhead =
22100 * 3   - 58300 = 66300 - 58300 = $8000 over-applied