Question

WWW Company’s flexible budget for manufacturing overhead follows:

Account	Machine Hours	Machine Hours	Machine Hours
	8,000	9,000	10,000
Variable Overhead	$10,000	$11,250	$12,500
Fixed Overhead	$28,000	$28,000	$28,000
Total Overhead Costs	$38,000	$39,250	$40,500

            The following additional information is available for the most recent period:

1. The activity level of 8,000 machine hours was chosen to compute the predetermined overhead rate
2. At 8,000 machine hours level of activity the company should produce 3,200 units of output
3. The company’s actual operating results were as follows:

Number of units produced                        3,500

Actual machine hours                               8,500

Actual fixed overhead                              $12,500

Actual total overhead                               $42,500

Required:

1. Compute the variable spending and efficiency variances and fixed overhead spending and volume variances.

Answer 1

Actual Variable overhead		AQ*SP		SQ*SP
		8500*1.25		8750*1.25
12500		10625		10937.5
Variable overhead spending variance		12500-10625=	1875	U
Variable overhead efficiency variance		10625-10937.5=	312.5	F
8000/3200 units=	2.5	hrs per unit
3500 units made in*2.5	8750	hours
Actual Fixed overhead		Budgeted		SQ*SP
				8750*3.5
42500		28000		30625
Fixed overhead Budget variance		42500-28000=	14500	U
Fixed overhead Volume variance		28000-30625=	2625	F