Question

Change the actual production in units to be 592,000 units.

Zepol company is planning to produce 600,000 power drills for the coming year. the company uses direct labor hours to assign overhead to products. Each drill requires .75 standard hour of labor for completion. The total budgeted over head was 1,777,500. The total fixed overhead budgeted for the coming year is 832,500. Predetermined overhead rates are calculated using expected production, measured in direct labor hours. actual results for the years are:

actual production (units) 594,000

actual direct labor hours (ah) 446,000

actual variable overhead 928,000

actual fixed overhead 835,600

1. compute the applied fixed overhead

2. compute the fixed overhead spending and volume variances

3. compute the applied variable overhead

4. compute the variable overhead spending and efficiency variances.

Answer 1

Solution 1:

Fixed overhead rate = $832,500 / (600000*0.75) = $1.85 per DLH

fixed overhead applied = SH * SR = (592000*0.75) * $1.85 = $821,400

Solution 2:

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

= $832,500 - $835,600 = $3,100 U

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

= $821,400 - $832,500 = $11,100 U

solution 3:

Variable overhead rate = ($1,777,500 - $832,500) / (600000*0.75) = $2.10 per DLH

Applied variable overhead = SH * SR = (592,000*0.75) * $2.10 = $932,400

Solution 4:

Actual rate of variable overhead = $928,000 / 446000 = $2.080717 per DLH

Variable overhead spending variance = (SR - AR) * AH = ($2.10 - $2.080717) * 446000 = $8,600 F

Variable overhead efficiency variance = (592000*0.75 - 446000) * $2.10 = $4,200 U