Question

In: Accounting

Sedona Company set the following standard costs for one unit of its product for 2017.

 

Sedona Company set the following standard costs for one unit of its product for 2017.

Direct material (20 Ibs. @ $2.50 per Ib.) $ 50.00

Direct labor (10 hrs. @ $22.00 per hr.) 220.00

Factory variable overhead (10 hrs. @ $4.00 per hr.) 40.00

Factory fixed overhead (10 hrs. @ $1.60 per hr.) 16.00

Standard cost $ 326.00

The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.


During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.

         
Variable overhead costs   $ 1,375,000  
Fixed overhead costs     628,600  
Total overhead costs   $ 2,003,600  
 


AH = Actual Hours
SH = Standard Hours
AVR = Actual Variable Rate
SVR = Standard Variable Rate
SFR = Standard Fixed Rate

    Operating Levels (% of capacity)  
Flexible Budget     70%       75%       80%  
Budgeted output (units)     35,000       37,500       40,000  
Budgeted labor (standard hours)     350,000       375,000       400,000  
Budgeted overhead (dollars)                        
Variable overhead   $ 1,400,000     $ 1,500,000     $ 1,600,000  
Fixed overhead     600,000       600,000       600,000  
Total overhead   $ 2,000,000     $ 2,100,000     $ 2,200,000  

 

1. 1. Compute the variable overhead spending and efficiency variances.

2 . Compute the fixed overhead spending and volume variances and classify each as favorable or unfavorable. (Round "Rate per unit" to 2 decimal places.)

3. Compute the controllable variance.

Solutions

Expert Solution

Solution :

Standard rate of variable overhead = $4 per hour

Actual rate of variable overhead = $1,375,000 / 340000 =$4.04412 per hour

Standard hours for actual production = 350000

Actual hours = 340000

Variable overhead spending variance = (SR - AR)* AH = ($4 - $4.04412) * 340000 = $15,000 U

Variable overhead efficiency variance = (SH - AH) * SR = (350000 - 340000) * $4 = $40,000 F

Solution 2:

Budgeted fixed overhead = $600,000

Actual fixed overhead = $628,600

Fixed overhead applied = SH * SR = 350000 * $1.60 = $560,000

Fixed overhad spending variance = Budgeted fixed overhead - Actual fixed overhead = $600,000 - $628,600 = $28,600 U

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead = $560,000 - $600,000 = $40,000 U

Solution 3:

Controllable variance = Variable overhead spending variance + Variable overhead efficiency variance + Fixed overhead spending variance

= $15,000 U + $40,000 F + $28,600 U

= $3,600 U


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