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Exercise 11-26 Straightforward Computation of Overhead Variances (LO 11-5) The following data are the actual results for Marvelous Marshmallow Company for October
Exercise 11-26 Straightforward Computation of Overhead Variances (LO 11-5)
The following data are the actual results for Marvelous Marshmallow Company for October.
Actual output 12,000cases
Actual variable overhead$401,000
Actual fixed overhead$160,000
Actual machine time 41,200machine hours
Standard cost and budget information for Marvelous Marshmallow Company follows:
Standard variable-overhead rate$9.00per machine hour
Standard quantity of machine hours 3hours per case of marshmallows
Budgeted fixed overhead$153,000per month
Budgeted output 17,000cases per month
Required:
Use any of the methods explained in the chapter to compute the following variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)
Variable-overhead spending variance 30,200 U
Variable overhead efficiency variance 46800 F
Fixed overhead budget variance 7000 U
Fixed overhead volume variance ????
Expert Solution
Variable-overhead spending variance = Actual variable overhead - (Actual hours * Standard variable overhead rate)
= 401,000 - (41,200 * 9.00)
= $30,200 Unfavorable
Variable-overhead efficiency variance = Standard variable overhead rate * (Actual hours - Standard hours)
= 9.00 * (41,200 - (3*12,000))
= 9*(41,200-36,000)
= $46,800 Favorable
Fixed-overhead budget variance = Actual fixed overhead - Budgeted fixed overhead
= 160,000 - 153,000
= $7,000 Unfavorable
Fixed-overhead volume variance = Budgeted fixed overhead - Applied fixed overhead
Here,
Applied fixed overhead = Pre determined fixed overhead rate * standard allowed hours
= (153,000/(17,000*3))*(12,000*3)
= 108,000
Fixed-overhead volume variance = $153,000-$108,000 = $45,000 Unfavorable
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