In: Accounting
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. |
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