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PEPPERS Company uses standard costing
PEPPERS Company uses standard costing. Overhead is applied to products on the basis of standard direct labor hours for actual production. Data for PEPPERS follows:
Standard direct labor hours allowed for actual output:
110,000
Actual direct labor hours:
115,000
Direct labor hours budgeted in the master budget:
120,000
Budgeted total variable overhead cost:
P360,000
Actual variable overhead cost:
P328,000
A. Calculate the variable overhead rate.
B. Calculate the total variable overhead applied to production.
C. Calculate the variable overhead spending variance.
D. Calculate the variable overhead efficiency variance.
E. Calculate the total variable overhead variance.
Expert Solution
A
Variable overhead rate = Budgeted total variable overhead cost / Budgeted direct labor hours = 360,000 / 120,000 = 3
B
Variable overhead applied to production = 3 X 115,000 = 345,000
C
Variable overhead spending variance = Actual hours X (Actual rate - Std Rate)
= 115,000 X (2.85 - 3) = 17,000 (Favorable)
D
Variable overhead efficiency variance = Std Rate X (Actual Hours - Std Hours)
= 3 X (115,000 - 110,000) = 15,000 (Unfavorable)
E
Total variance = 17000 - 15000 = 2,000 Favorable
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