Question

Chocolate, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 145,000 units requiring 620,000 direct labor hours. (Practical capacity is 630,000 hours.) Annual budgeted overhead costs total $802,600, of which $585,800 is fixed overhead. A total of 143,400 units using 619,200 direct labor hours were produced during the year. Actual variable overhead costs for the year were $275,800, and actual fixed overhead costs were $526,400. Required: a. Compute the fixed overhead spending and volume variances. b. Compute the variable overhead spending and efficiency variances.

Answer 1

A)Fixed overhead spending variance = Actual fixed overhead- Budgeted fixed overhead

                        = 526400- 585800

                          = - 59400 F

Fixed overhead volume variance= Budgeted fixed overhead- Standard fixed overhead at actual capacity

      = 585800- 575757.71

     = 10042.29 U

**standard fixed overhead= budgeted fixed overhead * actual hours /practical capacity

   = 585800*619200/630000

   = 575757.71

B)Variable overhead spending variance = Actual variable overhead- [AH*SVOHR]

                  = 275800- [619200*.34968]

                  = 275800 - 216521.86

                    = 59278.14 U

**Standard variable overhead rate = Budgeted variable overhead / budgeted direct labor hours

= [802600-585800]/620000

= .34968 per DLH

Variable overhead efficiency variance= SR[ AH-SH]

           = .34968[619200- 613158.62]

          = .34968* 6041.38

          = 2112.55 U

**STANDARD HOURS= 620000*143400/145000=613158.62