Question

9.21

Jackman Co. used a standard overhead rate equal to $6.25 per direct labor hour. The rate was computed using expected activity. Budgeted overhead costs are $80,000 for 10,000 direct labor hours and $120,000 for 20,000 direct labor hours. During the past year, Jackman generated:

a. Actual Production: 4,000units

b. Fixed Overhead Volume Variance: $1,750 U

c. Variable overhead efficiency variance: $3,200 F

d. Actual Fixed overhead cost: $41,335

e. Actual variable overhead costs: $70,000

Required:

1. Determine the fixed overhead spending variance

2. Determine the variable overhead spending variance

3. determine the standard hours allowed per unit of product

4. Assuming the standard labor rate is $9.50 per hour, compute the direct labor efficiency variance.

Answer 1

1) SVOR = ($120,000 – $80,000) / (20,000 – 10,000) = $4.00

Budgeted fixed overhead = $80,000 - ($4.00*10,000) = $40,000

Fixed Overhead = Actual Fixed Overhead - Budgeted Fixed Overhead

Fixed Overhead = $41,335 – $40,000 = $1,335 Unfavorable

2)

Fixed overhead volume variance = Budgeted fixed overhead - (Fixed overhead rate * SH ) $1,750 = $40,000 – ((6.25-4) * SH )

$38,250 = $2.25 * SH

SH = 17,000

Variable overhead efficiency variance = ( AH - SH ) SVOR

$(3,200) = ( AH - 17,000) * $4.00

(800) = AH - 17,000

AH = 16,200

Variable overhead spending variance = Actual Variable Overhead - (Variable Overhead rate * AH

Variable overhead spending variance = $70,000 – ($4.00 * 16,200)

= $70,000 – $64,800

= $5,200 Unfavorable

3) Standard hours allowed per unit of product = 17,000/4,000 = 4.25 hours per unit

4) Direct labor efficiency variance = ( AH – SH ) * SR

= (16,200 – 17,000)* $9.50

= $7,600 Favorable