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ABN Corp has the following information about its standards and production activity in May: Total factory overhead costs incurred: Variable overhead $ 55,000 Fixed overhead 40,000 Standard factory overhead rate: Variable overhead $ 4
ABN Corp has the following information about its standards and production activity in May:
| Total factory overhead costs incurred: | |||
| Variable overhead | $ | 55,000 | |
| Fixed overhead | 40,000 | ||
| Standard factory overhead rate: | |||
| Variable overhead | $ | 4.00 | per unit |
| Fixed overhead | 3.40 | per unit | |
| Denominator activity level (in units) | 13,700 | ||
| Actual units produced | 14,000 | ||
Required:
Calculate and show underlying calculations for each of the following variances:
1. Variable overhead flexible-budget (FB) variance, to the nearest whole dollar.
2. Fixed overhead spending variance, to the nearest whole dollar.
3. Fixed overhead production volume variance, to the nearest whole dollar.
4. Provide a short discussion/interpretation of each of the above-three variances.
Expert Solution
Variable overhead flexible budget variance = budgeted overhead -actual overhead
=(4*14,000)-55000 =56000-55000=1000F
2. Fixed overhead spending variance
=budgeted fixed overhead-actual fixed overhead
=(3.40*13,700)-40,000
=46580-4000=6580F
3. Fixed overhead production volume variance
=(actual units produced -budgeted production units )*budgeted overhead rate per unit
=(14000-13700)*3.40
=1020F
4.variable overhead is favarouble as actual cost incurred is less than the budgeted cost incurred. It shows that the variable factors are effecrively utilised
As more units are produced than the budgeted one , so fixed overhead is favourble and the per unit cost of fixed cost gets reduced due to excess unit produced
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