Question

Jake Company, which manufactures electrical switches, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labor hours and are shown below:

Variable overhead (5 hours @ $12 per direct manufacturing labor hour)        $ 60

Fixed overhead (5 hours @ $15* per direct manufacturing labor hour) $75

Total overhead per switch                                           $135

*Based on capacity of 200,000 direct manufacturing labor hours per month.

The following information is available for the month of November:

�      46,000 switches were produced although 40,000 switches were scheduled to be produced.

�      225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000.

�      Variable manufacturing overhead costs were $2,750,000.

�       Fixed manufacturing overhead costs were $3,050,000.

A multi part question

The total variable manufacturing overhead variance was?

What amount should be credited to the Allocated Manufacturing Overhead Control account for the month of December?

Under the 2-variance method, the flexible-budget variance for December was?

Under the 3-variance method, the spending variance for December was?

Answer 1

Requirement A:

Variable overhead spending variance = (Actual Input × Actual Rate) − (Actual Inputs × Budgeted Rate)

                                                            = $2,750,000 − (225,000 hours × $12)

                                                            = $50,000 Unfavorable

Variable overhead efficiency variance = (Actual Inputs × Budgeted Rate) − (Budgeted input allowed for Actual Output × Budgeted Rate)

                                                            = (225,000 hours × $12) − (46,000 × 5hours × $12)

                                                            = $60,000 Favorable

Total Variable manufacturing overhead variance = Variable overhead spending variance + Variable overhead efficiency variance

                                                            = $50,000 unfavorable + $60,000 favorable

                                                            = $10,000 favorable

Requirement B:

Manufacturing overhead allocated     = Number of switches × Overhead per switch

                                                            = 46,000 × $135

= $6,210,000

Requirement C:

Flexible budget variance         = Actual Factory overhead – Overhead budgeted for actual production

                                                = $2,750,000 + $3,050,000 – ((46,000 × $60) + 40,000 × $75)

                                                = $40,000 Unfavorable

Spending variance                   = Variable spending variance + Fixed budged variance

                                                = 50,000 unfavorable + (3,000,000 − $3,050,000)

                                                = 100,000 Unfavorable