Question

Requirement :1

Irving Corporation makes a product with the following standards for direct labor and variable overhead:

	Standard Quantity or Hours			Standard Price or Rate			Standard Cost Per Unit
Direct labor		0.20	hours	$	20.00	per hour	$	4.00
Variable overhead		0.20	hours	$	5.60	per hour	$	1.12

In November the company's budgeted production was 5,900 units, but the actual production was 5,700 units. The company used 1,640 direct labor-hours to produce this output. The actual variable overhead cost was $8,528. The company applies variable overhead on the basis of direct labor-hours.

The variable overhead rate variance for November is:

Requirement:2

Irving Company has a contribution margin of 15%. Sales are $633,000, net operating income is $94,950, and average operating assets are $143,000. What is the company's return on investment (ROI)?​

Answer 1

• All working forms part of the answer
• Requirement 1

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate = (8528/1640)	)	x	Actual Labor Hours
(	$                        5.60	-	$                       5.20	)	x	1640
	656
	Variance		$                  656.00			Favourable-F

• Requirement 2

ROI = (Net Operating Income / Average Operating Assets) x 100

= ($ 94950 / $ 143000) x 100

= 66.40%