Question

World Company expects to operate at 80% of its productive capacity of 56,250 units per month. At this planned level, the company expects to use 27,900 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.620 direct labor hours per unit. At the 80% capacity level, the total budgeted cost includes $69,750 fixed overhead cost and $320,850 variable overhead cost. In the current month, the company incurred $361,000 actual overhead and 24,900 actual labor hours while producing 40,000 units.

(1) Compute the overhead volume variance.
(2) Compute the overhead controllable variance

Fixed Overhead Applied
Fixed OH per DL hr.	$2.50
Standard DL hours
Fixed Overhead applied
Volume Variance
Total budgeted fixed OH
Total fixed overhead applied
Volume variance

Total actual overhead
Flexible budget overhead
Variable
Fixed
Total		0
Overhead controllable variance

Answer 1

Fixed Overhead Applied
Fixed OH per DL hrs.	2.5
Standard DL hours	24,800
Fixed Overhead Applied	62,000
Volume Variance
Total budgeted fixed OHs	69,750
Total fixed overhead applied	62,000
Volume Variance	7,750
Total actual overhead	3,61,000
Flexible budget overhead
Variable	2,85,200
Fixed	62,000
Total	3,47,200
Overhead controllable variance	-13,800

Note: Variable OHs rate per direct hours = budgeted variable OHs / Std. Hours = 320,850/ 27,900 = 11.5 per hour