The standard costs and actual costs for factory overhead for the manufacture of 2,800 units of...

The standard costs and actual costs for factory overhead for the manufacture of 2,800 units of actual production are as follows:

	Standard Costs
Fixed overhead (based on 10,000 hours)	3 hours per unit at $0.74 per hour
Variable overhead	3 hours per unit at $2.06 per hour

Actual Costs
Total variable cost, $17,900
Total fixed cost, $7,800

The total factory overhead cost variance is

a.$1,780 favorable

b.$2,964 favorable

c.$596 unfavorable

d.$1,780 unfavorable

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Ans:

Total factory overhead cost variance is: d. $1,780 unfavourable

Workings:

Total factory overhead cost variance = fixed factory overhead variance (i) + variable factory overhead variance (ii)

= $1,184 unfavourable + $596 unfavourable

= $1,780 unfavourable.

(i) Calculation of fixed factory overhead variance:

formula = standard fixed overhead rate per hour x (standard hour for actual output - budgeted hour)

= $.74 x [(2800 x 3) - 10,000]

= $.74 x (1,600)

= $1,184 unfavourable

(ii) Calculation of variable factory overhead variance:

formula = standard variable cost - actual variable cost

= (2,800 unit x 3 hour per unit x $2.06 per hour) - $17,900

= $17,304 - $17,900

=$596 unfavourable

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