Question

Factory Overhead Cost Variances

The following data relate to factory overhead cost for the production of 3,000 computers:

Actual:	Variable factory overhead	$122,200
	Fixed factory overhead	35,000
Standard:	3,000 hrs. at $49	147,000

If productive capacity of 100% was 5,000 hours and the total factory overhead cost budgeted at the level of 3,000 standard hours was $161,000, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $7 per hour. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Variance	Amount	Favorable/Unfavorable
Controllable variance	$	Favorable
Volume variance	$ 14000	Unfavorable
Total factory overhead cost variance	$	Unfavorable

Answer 1

1.Variable Factory overhead controllable variance.

Actual Variable Factory overhead incurred = $ 122200

Budgeted factory variable overhead for $3000hrs = $ 126000

(3000* (49-7))

Favourable variance = - $ 3800 (minus $3800)

2. Fixed factory overhead volume variance

Total production capacity at 100% = 5000hours

Standard production = 3000hours

Production capacity not used = 2000hours

Standard fixed factory overhead rate = $7 per hour

Unfavourable variance = $ 14000 (positive $ 14000)

Total Factory overhead cost variance - Unfavourable = $10200 (positive)

Conclusion:

Variance	Amount	Favorable/Unfavorable
Controllable variance	$-3800	Favourable
Volume variance	$ 14000	Unfavorable
Total factory overhead cost variance	$10200	Unfavorable