Question

Victory for MSU, Inc. manufactures huge MSU flags for tailgating. The company uses a standard costing system and applies overhead on the basis of direct labor hours. Victory provides the following information about this product:

Standards:

Direct material 18.0 yards of material per flag at $12.80 per yard

Direct labor 3.0 hours per flag at $10.60 per hour

Variable manufacturing overhead (MOH) standard rate $4.00 per direct labor hour

Predetermined fixed MOH standard rate $11.00 per direct labor hour

Total budgeted fixed MOH cost $81,600

Actual cost data from the most recent month:

Purchased 43,400 yards of material at a total cost of $647,300

Used 38,900 yards of material in producing 2,000 flags

Actual direct labor cost of $81,280 for a total of 8,920 hours

Actual variable MOH cost $44,629

Actual fixed MOH cost $79,300

Carry your answers to four decimal places.

Calculate variable manufacturing overhead (MOH) variances. Enter as a positive if favorable and negative if unfavorable.

a. Variable MOH rate variance:

b. Variable MOH efficiency variance:

Calculate fixed manufacturing overhead (MOH) variances. Enter as a positive if favorable and negative if unfavorable.

a. Fixed overhead budget variance:

b. Fixed overhead volume variance:

Answer 1

Solution 1:

Standard direct labor hours for actual production (SH) = 2000*3 = 6000 hours

Standard rate of variable overhead = $4 per direct labor hour

Actual direct labor hours (AH) = 8920 hours

Actual rate of variable manufacturing overhead = $44,629/ 8920 = $5.0033 per hour

Variable overhead rate variance = (SR - AR) * AH = ($4 - $5.0033) * 8920 = $8,949 U

Variable overhead efficiency variance = (SH - AH) * SR = (6000 - 8920) * $4 = $11,680 U

Solution 2:

Budgeted fixed manufacturing overhead cost = $81,600

Actual fixed manufacturing overhead cost = $79,300

Fixed manufacturing overhead applied = Standard direct labor hours for actual production * Predetermined overhead rate

= 6000 * $11 = $66,000

Fixed overhead budget variance = Budgeted fixed overhead - Actual fixed overhead = $81,600 - $79,300

= $2,300 F

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

= $66,000 - $81,600 = $15,600 U