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Question: The data below related to the month of May for Sosa Inc. which uses a...

Question:

The data below related to the month of May for Sosa Inc. which uses a standard cost system and two-variance analysis of overhead:

Actual total direct labor............................................................    $43,400

Actual hours used.....................................................................      14,000

Standard hours allowed for good output...................................      15,000

Direct labor rate variance—debit..............................................      $1,400

Actual total overhead................................................................    $40,250

Budgeted fixed costs................................................................      $9,000

“Normal” activity in hours........................................................      18,000

Total overhead application rate per standard direct labor hour..        $3.00

__d___ 14.   What was Sosa’s volume variance for May?

$1,250 favorable c. $1,500 favorable

$1,250 unfavorable d. $1,500 unfavorable

___c__ 15.   What was Sosa’s controllable variance for May?

$1,250 favorable c. $1,500 favorable

$6,250 favorable d. $1,500 unfavorable

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Answer #1

Solution 14:

Fixed overhead rate = $9,000 / 18000 = $0.50 per labor hour

Standard overhead rate per hour = $3 per hour

Variable overhead rate = $3 - $0.5 = $2.50 per hour

Fixed overhead applied = SH * SR = 15000 * 0.50 = $7,500

Budgeted fixed overhead = $9,000

Sosa' volume variance = Fixed overhead applied - Budgeted fixed overhead = $7,500 - $9,000 = $1,500 Unfavorable

Hence option d is correct.

Solution 15:

Budgeted overhead for actual production = (15000*$2.50) + $9,000 = $46,500

Actual overhead incurred = $40,250

Controllable variance = Budgeted overhead - Actual overhad = $46,500 - $40,250 = $6,250 Favorable

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