Question

Overhead Variances At the beginning of the year, Lopez Company had the following standard cost sheet for one of its chemical products: Direct materials (4 lbs. @ $2.80) $11.20 Direct labor (2 hrs. @ $18.00) 36.00 FOH (2 hrs. @ $5.20) 10.40 VOH (2 hrs. @ $0.70) 1.40 Standard cost per unit $59.00 Lopez computes its overhead rates using practical volume, which is 80,000 units. The actual results for the year are as follows: Units produced: 90,100 Direct labor: 158,900 hours at $18.80 FOH: $846,000 VOH: $114,900 Required: 1. Compute the variable overhead spending and efficiency variances. Spending variance $ Efficiency variance $ 2. Compute the fixed overhead spending and volume variances. Spending variances $ Volume variances $

Answer 1

Solution 1:

Standard hours for actual production = 90100*2 = 180200 hours

Actual hours = 158900 hours

Standard rate of variable overhead = $0.70 per hours

Standard variable overhead cost = SH * SR = 180200 * $0.70 = $126,140

Actual variable overhead cost = $114,900

Variable overhead spending variance = Standard variable overhead - Actual variable overhead = $126,140 - $114,900 = $11,240 F

Variable overhead efficiency variance = (SH - AH) *SR = (180200 - 158900) * $0.70 = $14,910 F

Solution 2:

Budgeted fixed overhead = 80000*2*$5.20 = $832,000

Actual fixed overhead = $846,000

Fixed overhead applied = standard hours * SR = 180200 * $5.20 = $937,040

Fixed overhead spending variance = Budgeted fixed overhead - Actual fixed overhead = $832,000 - $846,000 = $14,000 U

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

= $937,040 - $832,000 = $105,040 F