Question

Fixed Overhead Variances Rostand Inc. operates a delivery service for over 70 restaurants. The corporation has a fleet of vehicles and has invested in a sophisticated, computerized communications system to coordinate its deliveries. Rostand has gathered the following actual data on last year's delivery operations: Deliveries made 38,600 Direct labor 31,000 direct labor hours @ $9.00 Actual variable overhead $157,700 Rostand employs a standard costing system. During the year, a variable overhead rate of $5.10 per hour was used. The labor standard requires 0.80 hour per delivery. Assume that the actual fixed overhead was $533,000. Budgeted fixed overhead was $527,670, based on practical capacity of 32,000 direct labor hours. Required: 1. Calculate the standard fixed overhead rate based on budgeted fixed overhead and practical capacity. Round your answer to the nearest cent. $ 2. Compute the fixed overhead spending and volume variances. Round your final answer to the nearest whole dollar. Spending variance $ Volume variance $

Answer 1

Solution 1:

Standard fixed overhead rate = Budgeted fixed overhead / Budgeted direct labor hours

= $527,670 / 32000 = $16.49 per hour

Solution 2:

Budgeted fixed overhead = $527,670

Actual fixed overhead = $533,000

Applied fixed overhead = Standard hours for actual deliveries * SR

= (38600 * 0.8) * $16.49 = $509,211

Fxied overhead spending variance = Budgeted fixed overhead - Actual fixed overhead = $527,670 - $533,000 = $5,330 U

Fixed overhead volume variance = Fxied overhead applied - Budgeted fixed overhead

= $509,211- $527,670 = $18,459 U