Question

Change five of the numbers. Practical Volume is 90,000. Units produced will be88,000. Direct Labor will be 170,000hours. Actual Fixed Overhead is $930,000. Actual Variable Overhead is $125,000.

At the beginning of the year, Lopez company had the following standard cost of sheet for one o its chemical products.

    Direct labor ( 2 hours @ 18.00) $36.00

Direct materials ( 4 lbs @ 2.80) 11.50

FOH ( 2 hours @ 5.20) 10.40

VOH (2 hours @ .70) 1.40

standard cost per unit 59.00

Lopez computes is overhead rates using practical volume, which is 80,000 units. The actual results for the year are as follows. A) units produced: 79,600 B) direct labor: 158,900 hours at 18.10. C) FOH: 831,000 and D) VOH: 112,400

1. Compute the variable overhead spending and efficiency variances.

2. Compute the fixed overhead spending and volume variances.

Answer 1

Fixed Overhead Spending Variance= Budgeted Overhead- Actual Overhead

(80000*10.40)-831000=$1000 Favourable

Fixed Ovverhead Volume Variance= Applied Fixed Overhead- Budgeted Overhead

(79600X 10.40)-(80000*10.40)=$4160 Favoruable

Calculation of Variable OH Spening variance

= (Standard Variable OH Rate X Actual Hour) - actual Overhead Cost

=(0.7*158900)-112400=$1170 Unfavourable

Calculation of Variale OH efficiency variance:

= (standard hours required for actual production - actual hours used) × standard Rate

= (2 × 79600 -158900) × $0.70 = $210 F