Question

Hello. I am running into difficulty solving the problem below and would greatly appreciate a step-by-step explanation on how to arrive at the correct answer:

TYCO Company manufactures consumer products and provided the following information for the month of February:

• Units produced 131,000
• Standard direct labor hours per unit 0.20
• Standard fixed overhead rate (per direct labor hour) $2.50
• Budgeted fixed overhead $65,000
• Actual fixed overhead costs $68,300
• Actual hours worked 26,350

1. Calculate the fixed overhead spending variance and volume variance using the three-pronged graphical approach.

2. What if 129,600 units had actually been produced in February? What impact would that have had on the fixed overhead spending variance? On the volume variance?

Note: please try to give your calculations and explanations on Word or excel sheet as handwriting is sometimes difficult to read.

I would appreciate detailed calculations so I can better understand how to arrive at the correct answer.

Answer 1

1. ) FIXED OVERHEAD(FOH) SPENDING VARIANCE = BUDGETED FOH - ACTUAL FOH

BUDGETED FOH = $65000 , ACTUAL FOH = $ 68300

FOH SPENDING VARIANCE = 65000-68300 = $3300 (UNFAVOURABLE)

FOH VOLUME VARIANCE = (ACTUAL OUTPUT * STANDARD RATE ) - BFOH

ACTUAL OUTPUT = 131000 UNITS

STANDARD RATE PER UNIT = 0.20*2.50 = $0.5

FOH VOLUME VARIANCE = (131000*0.5) - 65000 = 65500-65000 = 500(F)

2.) IF ACTUAL UNITS = 129600

ACTUAL FOH COST = 68300/131000*129600 = $67570

FOH SPENDING VARIANCE = BUDGETED FOH - ACTUAL FOH = 65000 - 67570 = $2570(U)

FOH VOLUME VARIANCE = (ACTUAL OUPUT * STANDARD RATE ) - BUDGETED FOH

= (129600*0.5) - 65000 = 200(U)