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Homework answers / question archive / Saved Markus Limited produces a specialised machine part used in forklifts
Saved Markus Limited produces a specialised machine part used in forklifts. For last year's operations, the following data were gathered: Units produced 56,000 Direct labour: 30,000 hours @ $9.00 Actual variable overhead: $150,000 Markus employs a standard costing system. During the year, a variable overhead rate of $5.50 per hour was used. The labour standard requires 0.50 hours per unit produced. Required: Calculate the flexible-budget variance, the spending variance and the efficiency variance for variable manufacturing overhead,
Flexible Budget Variance for Variable Manufacturing Overhead = $4,000 Favorable
Spending Variance for Variable Manufacturing Overhead = $15,000 Favorable
Efficiency Variance for Variable Manufacturing Overhead = $11,000 Unfavorable
Explanation :
1) Flexible Budget Variance for Variable Manufacturing Overhead = Variable Manufacturing Overhead as per Flexible Budget - Actual Variable Manufacturing Overhead
Variable Manufacturing Overhead as per Flexible Budget = Standard Variable Manufacturing Overhead Rate * Standard Hours for Actual Output
Standard Variable Manufacturing Overhead Rate = $5.50 per hour (Given)
Standard Hours = 0.50 hours per unit (Given)
Actual Output = 56,000 units (Given)
Standard Hours for Actual Output = 0.50 * 56,000
= 28,000 hours
Variable Manufacturing Overhead as per Flexible Budget = Standard Variable Manufacturing Overhead Rate * Standard Hours for Actual Output
= $5.50 * 28,000
= $154,000
Actual Variable Overhead = $150,000 (Given)
Therefore,
Flexible Budget Variance for Variable Manufacturing Overhead = $154,000 - $150,000
= $4,000
= $4,000 Favorable
2) Variable Manufacturing Overhead Spending Variance = (Standard Variable Manufacturing Overhead Rate * Actual Hours) - Actual Variable Manufacturing Overhead
Standard Variable Manufacturing Overhead Rate = $5.50 (Given)
Actual Hours = 30,000 (Given)
Actual Variable Manufacturing Overhead = $150,000 (Given)
Therefore,
Variable Manufacturing Overhead Spending Variance = ($5.50 * 30,000) - $150,000
= $165,000 - $150,000
= $15,000
= $15,000 Favorable
3) Variable Manufacturing Overhead Efficiency Variance = (Standard Hours for Actual Output - Actual Hours) * Standard Variable Manufacturing Overhead Rate
Standard Hours for Actual Output = 28,000 (calculated above in 1)
Actual Hours = 30,000 (Given)
Standard Variable Manufacturing Overhead Rate = $5.50 (Given)
Therefore,
Variable Manufacturing Overhead Efficiency Variance = (28,000 - 30,000) * $5.50
= -2,000 * $5.50
= -$11,000
= $11,000 Unfavorable
