Question

The data related to Shunda Enterprises Inc.’s factory overhead cost for the production of 30,000 units of product are as follows:

Actual:	Variable factory overhead	$104,700
	Fixed factory overhead	76,200
Standard:	46,000 hrs. at $4 ($2.30 for variable factory overhead)	184,000

Productive capacity at 100% of normal was 45,000 hours, and the factory overhead cost budgeted at the level of 46,000 standard hours was $182,900. Based on these data, the chief cost accountant prepared the following variance analysis:

Variable factory overhead controllable variance:
Actual variable factory overhead cost incurred	$104,700
Budgeted variable factory overhead for 46,000 hours	(105,800)
Variance—favorable			$(1,100)
Fixed factory overhead volume variance:
Normal productive capacity at 100%	45,000	hrs.
Standard for amount produced	(46,000)
Productive capacity not used	1,000	hrs.
Standard variable factory overhead rate	x $4
Variance—unfavorable			4,000
Total factory overhead cost variance—unfavorable			$2,900

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

ANSWER:

Variable Factory Overhead Controllable Variance

= Standard variable overhead - Actual Variable overhead

= [(Standard Hours * Standard rate of variable overhead) - Actual overhead]

= [(46,000 * 2.30) - 104,700]

= 105,800‬ - 104,700 = $1,100‬ (Unfavorable)

Fixed Factory Overhead Volume Variance

= [Absorption rate of fixed overhead * (Standard hours - Actual hours)]

= [(4 - 2.30) * (46,000 - 45,000)]

= (1.70 * 1,000) = $1,700 (Unfavorable)

Total Factory Overhead Cost Variance

= Variable Factory Overhead Controllable Variance + Fixed Factory Overhead Volume Variance

= 1,100 + 1,700 = $2,800 (Unfavorable)