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The company has developed standard overhead rates based on a monthly capacity of 180 000 direct labour hours (DLH) as follows: Standard costs per unit (one box of folders): Variable overhead (2 hours @ $6 per DLH) Fixed overhead (2 hours @ $10 per DLH) Total $12 20 $32 During April, 90 000 units were budgeted for production; however, only 80 000 units were produced
The company has developed standard overhead rates based on a monthly capacity of 180 000 direct labour hours (DLH) as follows: Standard costs per unit (one box of folders): Variable overhead (2 hours @ $6 per DLH) Fixed overhead (2 hours @ $10 per DLH) Total $12 20 $32 During April, 90 000 units were budgeted for production; however, only 80 000 units were produced. The following data relate to April: Actual direct labour cost incurred was $3 135 000 for 165 000 actual hours of work. Actual overhead incurred totalled $2 743 000, of which $1 023 000 was variable and $1 720 000 was fixed. Required: Prepare two exhibits, similar to Exhibits 11.5 and 11.6, showing the following variances. State whether each variance is favourable or unfavourable. 1. variable overhead spending variance 2. variable overhead efficiency variance 3. fixed overhead budget variance 4. fixed overhead volume variance
Expert Solution
1) Variable Overhead Spending variance = [(Actual Rate - Standard Rate) * Actual Hours]
Variable Overhead Spending variance = [(6.20 - 6.00) * 165,000 = $33,000 U
2) Variable Overhead Efficiency variance = [(Actual Hours - Standard Hours for Actual Output)] * Standard Rate
Variable Overhead Efficiency variance = [165,000 - (2 * 80,000)] * 6 = $30,000 U
3) Fixed Overhead Budget Variance = [Actual Fixed OH - Bugeted Fixed OH]
Fixed Overhead Budget Variance = [1,720,000 - 1,800,000] = $80,000 F
4) Fixed Overhead Volume Variance = [Budgeted Fixed OH - Applied Fixed OH]
Fixed Overhead Volume Variance = [1,800,000 - (10 * 165,000)] = $150,000 U
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