Question

The loan department of Your Local Bank uses standard costs to determine the overhead cost of processing loan applications. During the current month, a fire occurred, and the accounting records for the department were mostly destroyed. The following data were salvaged from the ashes:

Standard variable overhead rate per hour		$9
Standard hours per application		3
Standard hours allowed		3,000
Standard fixed overhead rate per hour		$6
Actual fixed overhead cost		$19,800
Variable overhead budget based on standard hours allowed		$27,000
Fixed overhead budget		$19,800
Overhead budget variance		$1,500	Unfavourable

1. Total actual overhead cost
2. Actual variable overhead cost

3. Variable overhead cost applied

4. Fixed overhead cost applied

5. Overhead volume variance

Determine how many loans were processed.

Answer 1

1.We Know that Total Actual Overhead Cost = Actual Fixed Overhead cost + Actual Variable Overhead cost.

Given

A. Fixed Overhead cost Budget = $19,800

B. Variable Overhead cost Budget=$27,000

So,Total Overhead Budget (A+B)=$46,800.

Also it is given that that there is an Unfavorable Overhead Budget Variance of 1,500$ it means Actual cost exceeded budget by 1,500$.

So,Total Actual Overhead cost =$46,800+$1,500=$48,300

2.It is given that Actual Fixed Overhead cost = $19,800

So,Actual Variable Overhead Cost=Total Actual Overhead cost-Actual Fixed Overhead cost=$48,300-$19,800=$28,500

3.As the Actual hours required per application or the actual hours incurred or actual rate incurred per hour is not given ,

Assuming the total variance ocurred is due to change in the volume,but not due to variance in rate,

Actual Variable Overhead cost applied per hour =$27000/3000=$9

4.Actual hours taken=Actual Variable Overhead Cost/Actual Variable Overhead cost applied per hour =$28,500/$9=3167 hours

So,Actual Fixed Overhead cost applied per hour=$19,800/3167=$6

5.Overhead Volume variance=Budgeted hours*Statndard rate-Actual hours*Standard rate

So,Overhead Volume variance=3000*$9-3167*$9=-1503$

Number of Loans processed=Standard hours allowed/Standard hours per application=3000/3=1000 applications