Question

Different management levels in Wates, Inc., require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows:

Budgeted output units

3,000

units

Budgeted fixed manufacturing overhead

$21,000

Budgeted variable manufacturing overhead

$5

per direct labor hour

Budgeted direct manufacturing labor hours

2

hours per unit

Fixed manufacturing costs incurred

$26,000

Direct manufacturing labor hours used

7,200

Variable manufacturing costs incurred

$35,600

Actual units manufactured

3,400

Required: Compute all of the Fixed OH variances

Answer 1

i ) Answer: $5,000 Unfavorable

i) Fixed overhead spending variance = Fixed manufacturing costs incurred - Budgeted fixed manufacturing overhead

= $26,000 - $21,000

= $5,000 Unfavorable

.

Fixed overhead production-volume variance = Budgeted fixed manufacturing cost - (Actual units manufactured x Budgeted direct manufacturing labor hours x Budgeted variable manufacturing overhead per unit for actual units 3,000)

= $21,000 - (3,400 x 2 x $3.5)

= $21,000 - $23,800

= $2,800 Favorable

*

Note : $21,000 /(3,000 units x 2) = $3.5