Question

Pointe Claire Company applies overhead based on direct labour hours. Two direct labour hours are required for each unit of product. Planned production for the period was set at 8,600 units. Manufacturing overhead is budgeted at $120,400 for the period (20% of this cost is fixed). The 16,730 hours worked during the period resulted in the production of 8,190 units. The variable manufacturing overhead cost incurred was $98,300 and the fixed manufacturing overhead cost was $28,100.

1.Calculate the variable overhead spending variance for the period. Favourable or unfavourable ?

2.Calculate the variable overhead efficiency (quantity) variance for the period. Favourable or unfavourable ?

3.Calculate the fixed overhead budget (spending) variance for the period.Favourable or unfavourable ?

4. Calculate the fixed overhead volume variance for the period.Favourable or unfavourable ?

Answer 1

Solution 1:

Standard rate of variable overhead = ($120,400*80%) / (8600*2) = $5.60 per DLH

Actual rate of variable overhead = $98,300 / 16730 = $5.875672 per DLH

Variable overhead spending variance = (SR - AR) * AH = ($5.60 - $5.875672) * 16730 = $4,612 Unfavorable

Solution 2:

Variable overhead efficiency variance = (SH - AH) * SR = (8190*2 - 16730) * $5.60 = $1,960 unfavorable

Solution 3:

Fixed overhead spending variance = Budgeted fixed overhead - actual fixed overhead = ($120,400*20%) - $28,100

= $4,020 Unfavorable

Solution 4:

Fixed overhead rate = ($120,400*20%) / (8600*2) = $1.40 per DLH

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

= (8190*2*$1.40) - ($120,400*20%)

= $1,148 Unfavorable