Question
In: Accounting
At the beginning of the year, Lopez Company had the following standard cost sheet for one...
At the beginning of the year, Lopez Company had the following standard cost sheet for one of it's chemical products:
Direct Materials (4 lbs @ $2.80) - $11.20
Direct Labor (2 hrs @ $18.00) - 36.00
FOH (2 hrs @ $5.20) - 10.40
VOH (2 hrs @ $0.70) - 1.40
Standard Cost Per Unit - $59.00
Lopez computes its overhead rates using practical volume, which is 90,000 units.
The actual results for the year are as follows:
(a) units produced: 88,000
(b) direct labor: 170,000 hours
(c) FOH: $930,000 and
(d) VOH: $125,000
1. Compute the variable overhead spending variance.
2. Compute the variable overhead efficiency variance.
3. Compute the fixed overhead spending variance.
4. Compute the fixed overhead volume variance.
Solutions
Expert Solution
| Answer: |
|
Actual Hours = AH Standard Rate = SR Standard Hours = SH Actual rate = AR |
| For Direct Material: |
|
Variable overhead spending
variance =
AH x (AR (-) SR) = 170,000 x ($0.74 (-) $0.70) = $6,800 (UnFavourable) |
| ** Actual Rate = VOH / Actual hours Worked = $125,000 / 170,000 = $ 0.74 |
|
Variable overhead Efficiency
variance =
SR x (AH (-) SH) = $0.70 x (170,000 (-) 176,000) = $4,200 (Favourable) |
| ** Standard hours = units produced x No. of Hours = 88,000 units * 2 hour = 176,000 hours |
|
Fixed overhead spending
variance =
Actual FOH (-) Budgeted FOH = $930,000 (-) (90,000 x $10.40) = $930,000 (-) $936,000 = $6,000 (Favourable) |
|
Fixed overhead Volume
variance =
Absorbed FOH (-) Budgeted FOH = (88,000 x $10.40) (-) (90,000 x $10.40) = $915,200 (-) $936,000 = $20,800 (Favourable) |
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