Question

11. World Company expects to operate at 80% of its productive capacity of 70,000 units per month. At this planned level, the company expects to use 25,200 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.450 direct labor hour per unit. At the 80% capacity level, the total budgeted cost includes $57,960 fixed overhead cost and $322,560 variable overhead cost. In the current month, the company incurred $386,000 actual overhead and 22,200 actual labor hours while producing 53,000 units.

(1) Compute the overhead volume variance. Classify each as favorable or unfavorable.
(2) Compute the overhead controllable variance. Classify each as favorable or unfavorable.

1.

	Fixed Overhead Applied Fixed overhead applied Volume Variance Volume variance

2.

	Total actual overhead Flexible budget overhead Total 0 Overhead controllable variance

Answer 1

1	Fixed Overhead Applied :
	Fixed Overhead per Direct Labor Hour ( 57,960 / 25,200 )	2.30
	Standard Direct Labor Hours	23,850
	Fixed Overhead Applied	54,855
	Volume Variance
	Fixed Overhead Applied	54,855
	Total Budgeted Fixed Overhead	57,960
	Volume Variance	-            3,105	Unfavorable
2	Overhead Controllable Variance
	Actual Total Overhaed		386,000
	Flexible Budget Overhead
	Fixed	57,960
	Variable ( 322,560 / 25,200 ) * 23,850	305,280
	Total		363,240
	Overhead Controllable Variance		22,760	Unfavorable