Question

Bluecap Co. uses a standard cost system and flexible budgets for control purposes. The following budgeted information pertains to 2019:

Denominator volume—number of units		9,000
Denominator volume—percent of capacity		90	%
Denominator volume—standard direct labor hours (DLHs)		27,000
Budgeted variable factory overhead cost at denominator volume	$	103,700
Total standard factory overhead rate per DLH	$	15.10

During 2019, Bluecap worked 26,000 DLHs and manufactured 9,100 units. The actual factory overhead cost for the year was $13,000 greater than the flexible budget amount for the units produced, of which $5,000 was due to fixed factory overhead. In preparing a budget for 2020 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 8,500 units at a budgeted total of 25,500 DLHs.

The variable overhead spending variance in 2019 for Bluecap Co. (to the nearest whole dollar) was: (Round your intermediate calculation to 2 decimal places.)

A. $10,752 favorable.

B. $5,000 unfavorable.

C. $17,992 unfavorable.

D. $9,552 unfavorable.

E. $12,992 unfavorable.

Answer 1

ans:

E. $12,992 unfavorable.

Variable overhead Spending Variance=Actual Hours*(Standard Rate-Actual Rate)

26,000hours*$3.8407- $1,12,852=$12,992unfavourable

Working:

Given:

Actual hours=26,000hours

Standard rate=Budgeted variable overhead/Standard hours

$1,03,700/27,000hours=$3.8407

Actual Variable overhead expenditure=Actual hours*Actual rate

Given Actual factory overhead is greater than $13,000 the flexible budget

So flexible budget for 9,100units

particulars		Amount $
Variable overhead		104,852
1,03,700/9000*9,1000
Fixed overhead		3,04,000
27,000*$15.1-$1,03,700
Total factory overhead		$4,08,852

Note1:

Fixed factory overhead=Total factory overhead-variable factory overhead

Note2:

So Actual factory overhead=4,08,852+13,000

                                                  =$4,21,852

Actual variable factory overhead=Actual factory OH - Fixed FOH - Increase in fixed FOH

Actual variable factory overhead=4,21,852-3,04,000-5,000

                                                            =$1,12,852