Question

Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017. Costs and Production Data Actual Standard Raw materials unit cost $2.25 $2.10 Raw materials units used 10,600 10,000 Direct labor payroll $120,960 $120,000 Direct labor hours worked 14,400 15,000 Manufacturing overhead incurred $189,500 Manufacturing overhead applied $193,500 Machine hours expected to be used at normal capacity 42,500 Budgeted fixed overhead for June $55,250 Variable overhead rate per machine hour $3.00 Fixed overhead rate per machine hour $1.30 Overhead is applied on the basis of standard machine hours. 3.00 hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount used. Compute the overhead controllable variance and the overhead volume variance.

Answer 1

A) overhead controllable variance = Actual overhead cost - Standard cost For actual Output

                 = 189500 -190250

                 = - 750 F   (enter as 750 F if needs to be entered as positive values)

working:

Actual overhead cost = 189500

standard machine hours allowed per standard direct labor allowed = 15000 standard direct labor hours *3 machine hours are required for each direct labor hour

                    = 45000 machine hours

Standard cost For actual Output = (standard machine hours* standard variable overhead cost) +Fixed overhead cost

                       (45000*3 ) +55250

                         135000+55250

                         190250

B)Overhead Volume variance = Budgeted fixed overhead - Standard fixed overhead allowed for standard machine hours allowed

                           = 55250 - (1.30 *45000)

                           = 55250 -- 58500

                          = -3250 F        (enter as 3250 F if needs to be entered as positive values)