Question

Crazy Fish Winery purchases select wines in bulk from the area’s wineries and blends and bottles the wine for sale under its own label. Its variable overhead costs (power, cleaning supplies) and fixed overhead costs (salaries of skilled vintners involved in quality-control and building-related costs) are allocated on the basis of bottling machine-hours. For the quarter ending September 30, 2008, Crazy Fish reports the following:

	Actual Results	Static Budget
Production Volume (bottles)	480,000	420,000
Bottling machine-hours	3,000	2,800
Variable overhead	$153,000	$140,000
Fixed overhead	$960,000	$980,000

1. Compute the variable overhead spending and efficiency variances.

2. Compute the fixed overhead spending and production-volume variances.

3. Briefly interpret each of these ratios.

Answer 1

Particulrs	Actual Results	Static Budget
Production Volume (bottles)	480000	420000
Bottling machine-hours	3000	2800
Variable overhead	$153,000	$140,000
Variable overhead P.U	$51	$50
Fixed overhead	$960,000	$980,000
Variable overhead spending variance = AH × (AR – SR)
	3000*($51-$50)
	$3000 un favourable
Variable overhead efficiency variance = (AH -SH)* SR
	(3000-2800)*$50
	$10000 unfavourable
The fixed overhead spending variance is the difference between the actual amount of fixed overhead and the budgeted amount of fixed overhead
	($960000-$980000)
	$20000 favourable
Fixed Overhead Volume Variance = (Actual Activity – Normal Activity) × Fixed Overhead Application Rate
	(480000-420000)*$2.333
	$139800 favourable