Question

GreatGreat

Fender allocates manufacturing overhead to production based on standard direct labor hours.

GreatGreat

Fender reported the following actual results for

2016​:

actual number of fenders​ produced ,20,000​;

actual variable​ overhead,$5,300​;

actual fixed​ overhead,$27,000​;

actual direct labor​ hours,370.

Read the requirements

.

Requirement 1. Compute the overhead variances for the​ year: variable overhead cost​ variance, variable overhead efficiency​ variance, fixed overhead cost​ variance, and fixed overhead volume variance.

Begin with the variable overhead cost and efficiency variances. Select the required​ formulas, compute the variable overhead cost and efficiency​ variances, and identify whether each variance is favorable​ (F) or unfavorable​ (U). ​(Abbreviations used: AC​ = actual​ cost; AQ​ = actual​ quantity; FOH​ = fixed​ overhead; SC​ = standard​ cost; SQ​ = standard​ quantity; VOH​ = variable​ overhead.)

		Formula		Variance
VOH cost variance	=		=
VOH efficiency variance	=		=

		Formula						Variance
FOH cost variance	=	Actual FOH - Budgeted FOH	=		-		=
FOH volume variance	=	Bugeted FOH - Allocated FOH	=		-		=

Static budget variable overhead	$4,608
Static budget fixed overhead	$23,040
Static budget direct labor hours	576	hours
Static budget number of units	24,000	units
Standard direct labor hours	0.024	hours per fender

Thank you and enjoy your day

Answer 1

Actual variable overhead rate = $5,300 / 370 = $14.32432 per dlh

Standard variable overhead rate = $4,608 / 576 = $8 per dlh

VOH cost variance = (AC - SC) * AQ

VOH cost variance = ($14.32432 - 8) * 370 = $2,340 Unfavorable

VOH efficiency variance = (SQ - AQ) * SC

VOH efficiency variance = (20,000*0.024 - 370) * $8

VOH efficiency variance = (480 - 370) * $8 = $880 Favorable

Standard fixed overhead rate = $23,040 /576 = $40 per dlh

FOH cost variance = Actual FOH - Budgeted FOH

FOH cost variance = $27,000 - 23,040 = $3,960 Unfavorable

FOH volume variance = Budgeted FOH - Allocated FOH

FOH volume variance = $23,040 - $19,200 (20,000*0.024*$40) = $3,840 Unfavorable