Question

Standard variable overhead rate per hour	$1
Standard fixed overhead rate per hour	$2
Planned monthly activity	40,000 machine hours
Actual production completed	82,000 units
Standard machine processing time	Two units per hour
Actual variable overhead	$37,000
Actual total overhead	$121,000
Actual machine hours worked	40,500

                  All of the company's overhead is variable or fixed in nature.

                  

                  Required:

                  1.     Calculate the spending and efficiency variances for variable overhead.

                  2.     Calculate the SPENDING and PRODUCTION volume variances for fixed overhead.

Answer 1

Solution 1:

Standard machine hours for actual production = 82000/2 = 41000 hours

Actual machine hours worked = 40500 hours

Standard rate of variable overhead = $37,000 / 40500 = $0.91358 per machine hour

Actual rate of variable overhead = $1 per machine hour

Variable overhead spending variance = (SR - AR) * AH = ($1 - 0.91358) * 40500 = $3,500 F

Variable overhead efficiency variance = (SH - AH) * SR = (41000 - 40500) * $1 = $500 F

Solution 2:

Budgeted fixed overhead = 40000*$2 = $80,000

Actual fixed overhead = $121,000 - $37,000 = $84,000

Fixed overhead applied = SH * SR = 41000 * $2 = $82,000

Fixed overhead spending variance = Budgeted fixed overhead - Actual fixed overhead

= $80,000 - $84,000 = $4,000 U

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead = $82,000 - $80,000 = $2,000 F