Question

Edney Company employs a standard cost system for product costing. The per-unit standard cost of its product is:

Raw materials	$	14.00
Direct labor (2 direct labor hours × $8.00 per hour)		16.00
Manufacturing overhead (2 direct labor hours × $10.00 per hour)		20.00
Total standard cost per unit	$	50.00

The manufacturing overhead rate is based on a normal capacity level of 600,000 direct labor hours. (Normal capacity is defined as the level of capacity needed to satisfy average customer demand over a period of two to four years. Operationally, this level of capacity would take into consideration sales trends and both seasonal and cyclical factors affecting demand.) The firm has the following annual manufacturing overhead budget:

Variable	$	3,665,000
Fixed		3,000,000
	$	6,665,000

Edney incurred $435,950 in direct labor cost for 54,800 direct labor hours to manufacture 26,000 units in November. Other costs incurred in November include $338,000 for fixed manufacturing overhead and $373,500 for variable manufacturing overhead.

Required:

1. Determine each of the following for November. [Note: Indicate whether each variance is favorable (F) or unfavorable (U).]

a. The variable overhead spending variance.

b. The variable overhead efficiency variance.

c. The fixed overhead spending (budget) variance.

d. The fixed overhead production volume variance.

e. The total amount of under- or overapplied manufacturing overhead (i.e., the total manufacturing overhead cost variance for the period).

Answer 1

Answer 1 & 2
Remarks	Measure	Labor Hour
Budgeted variable cost /direct labor hours budgeted (3665000/600000)	Standard variable overhead rate per labor Hour	6.108
Actual variable overhead cost / actual labor hours (373500/54800)	Actual variable overhead rate per labor Hour	6.816
26000 units *2 hour per unit	Standard labor Hours	52000
	Actual labor Hours	55200
	Standard variable overhead rate per labor Hour	6.108
Less	Actual variable overhead rate per labor Hour	-6.816
	Difference	-0.707
Multiply	Actual labor Hours	55200
	Variable overhead spending variance	-39046
	Indicate	Unfavorable
	Standard labor Hours	52000
Less	Actual labor Hours	-55200
	Difference	-3200
Multiply	Standard variable overhead rate per labor Hour	6.108
	Variable overhead efficiency variance	-19547
	Indicate	Unfavorable
Answer 3 & 4
Budgeted Fixed Overheads	250000
Actual Fixed Overheads	338000
Budgeted units	25000
Actual units	26000
Monthly fixed budgeted overhead =3000000/12 months	250000
Annual budgeted units (600000 budgeted labor hour / 2 hour per unit )	300000
Monthly budgeted units (300000/12)	25000
Budgeted Fixed Overhead Rate ( Budgeted Fixed Overheads / Budgeted units)	$                 10.00
Applied Fixed Overhead (Budgeted Fixed Overhead Rate * Actual units)	260000
Less: Budgeted Fixed Overheads	-250000
Fixed Overhead Volume Variance	$               10,000
Indicate	Favorable
Budgeted Fixed Overheads	250000
Less: Actual Fixed Overheads	338000
Fixed Overhead Budget Variance	-88000
Indicate	Unfavorable