Question

At the start of 2018, Oak Express Company determined its standard labor cost to be 2.60 hours per unit at $12.00 per hour. The budget for variable overhead was $8 per unit, and budgeted fixed overhead was $15,000 for the year. Expected annual production was 6,000 units. During 2018, the actual cost of labor was $14 per hour. Oak Express produced 4,500 units requiring 12,700 direct labor hours. Actual overhead for the year was $54,400.

Calculate labor rate and efficiency variances and the controllable overhead variance and the overhead volume variance. (Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 125. Enter all variances as a positive number.)

blank options are: favorable, non favorable, neither

Answer 1

Answer:

Labor rate variance = actual hours times (Actual Rate-Std Rate)

So we have 12,700(14-12) = $25,400 Unfavorable

Labor efficiency variance = (Actual hours-Standard hours) *Standard Rate per hour

Standard hors = Actual units*stand hours required per unit

=4,500*2.60hours=11,700 hours

So we have (12,700-11, 700) $12= $12,000 Unfavorable.

Overhead controllable variance:

Difference between actual total overhead and budgeted overhead cost for actual produced units.

$54,400 – (4,500*$8+$15,000) = $3,400 Unfavorable

Actual overhead are more than budgeted flexible overhead so variance is Unfavorable

Overhead Volume variance:

Difference between fixed overhead actually applied to produce goods as per production volume and budgeted fixed overhead.

$11,250 - $15,000 = $3,750 Unfavorable

actual applied are less than budgeted so variance is unfavorable.

Working:

Budgeted overhead = $15,000

fixed overhead applied:   

Fixed overhead applied rate per unit = 15,000/6000 = $2.5

Fixed overhead applied = 4,500 units*$2.5 = $11,250