Question

Patel and Sons, Inc., uses a standard cost system to apply overhead costs to units produced. Practical capacity for the plant is defined as 55,500 machine hours per year, which represents 27,750 units of output. Annual budgeted fixed overhead costs are $277,500 and the budgeted variable overhead cost rate is $3.80 per unit. Factory overhead costs are applied on the basis of standard machine hours allowed for units produced. Budgeted and actual output for the year was 21,600 units, which took 44,500 machine hours. Actual fixed overhead costs for the year amounted to $270,600 while the actual variable overhead cost per unit was $3.70.

Required: (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

A. Based on the information provided above, what was the fixed overhead spending (budget) variance for the year?

B. What was the fixed overhead production volume variance for the year?

C. Based on the information provided above, what was the variable overhead spending variance for the year?

D. What was the variable overhead efficiency variance for the year?

Answer 1

Answer

A.The fixed overhead spending (budget) variance for the year:

= Actual fixed overhead costs ? Budgeted fixed overhead

= $270,600 ? $277,500

= $6,900 F

B.The fixed overhead production volume variance for the year:

Budgeted fixed overhead ? Applied fixed overhead

= $277,500 ? (21,600 units × 2 hrs./unit(55500/27750) × $5/hr.(277500/55500))

= $277,500 ? $216,000

= $61,500 U

C.The variable overhead spending variance for the year:

Actual variable overhead costs ? Flexible budget based on inputs

= ($3.70/unit × 21,600 units) ? (44,500 hours × $1.90/hr.[27750*3.80/55500])

= $79,920 ? $84,550

=$4,630 F

D.

The variable overhead efficiency variance for the year:

Flexible budget based on Inputs ? Flexible budget based on Output

= $84,550 ? (21,600 units × 2 hrs./unit × $1.90/hr.)

= $84,550 ? $82,080

=$2,470 U