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Better Fitness Gear applies overhead on the basis of direct labor hours. Five direct labor hours...

Better Fitness Gear applies overhead on the basis of direct labor hours. Five direct labor hours are required for each unit produced. Planned production for the period was set at 8,000 units. Budgeted fixed manufacturing overhead for the period is budgeted at $20,000 and variable manufacturing overhead is budgeted at $100,000. The 48,500 hours worked during the period resulted in production of 9,500 units. Actual manufacturing overhead cost incurred was $156,000. Required: Calculate the three overhead variances:

a. Total Spending Variance

b. Total Efficiency Variance

c. Total Volume Variance

d. Proof: Total Factory Overhead Variances

e. Interpret your variances

Solutions

Expert Solution

a.

Total spending variance = Actual hours*standard rate (applied overhead) - Actual hours*actual rate (actual overhead)

Actual hours*actual rate = $156,000

Standard variable overhead rate per hour = $100,000/8,000*5 = $2.5

Total spending variance = (48,500*$2.5 + $20,000) - $156,000

Total spending variance = ($121,250 + 20,000) - $156,000

Total spending variance = $14,750 Unfavorable

b.

Total efficiency variance = Standard hours*standard rate - Actual hours*standard rate

Standard hours = Actual output*budgeted hours required per output

Standard hours = 9,500 * 5 = 47,500 hours

Total efficiency variance = (47,500*$2.5) - (48,500*$2.5)

Total efficiency variance = $118,750 - 121,250 = $2,500 Unfavorable

c.

Total volume variance = (Budgeted hours - standard hours)*standard fixed overhead rate per labor hour

standard fixed overhead rate per labor hour = $20,000 / 8,000*5 = $0.5

Total volume variance = (8,000*5 - 47,500)*$0.5

Total volume variance = 7,500*$0.5 = $3,750 Favorable

d & e.

Total factory overhead variance = Controllable variance + Volume variance

Controllable variance = Actual overhead - Absorbed overhead

Controllable variance = $156,000 - 47500*$2.5 + $20,000 = $17,250 U

Volume variance = $3,750 F

Total factory overhead variance = $17,250 U + 3,750 F = $13,500 U

Total spending variance $14,750 Unfavorable
Total efficiency variance $2,500   Unfavorable
Total volume variance $3,750 Favorable
Total factory overhead variance $13,500 Unfavorable

ekkarill92 answered 6 hours ago
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