Question

Alden Company uses a three-variance analysis for factory overhead variances. Practical capacity is defined as 32 setups and 32,000 machine hours to manufacture 6,400 units for the year. Selected data for 2019 follow:

Budgeted fixed factory OH
Setup cost	57600
other	176000	233600
Total factory OH rate		492000
Variable factory OH rate
per setup		750
per machine hour		7
total standard machine hours allowed for the units manufactured		26000 hrs
machine hours actually worked		29000 hrs
actual total number of set ups		28
actual number of units produced during the year		5200
standard number of setups for units produced during the year		26

1. Compute: (a) the total overhead spending variance, (b) the overhead efficiency variance, and (c) the total overhead flexible-budget variance for 2019. Label each variance as favorable (F) or unfavorable (U).

A) Spending variance _____?_____ Unfavorable

B) Efficiency variance _____?_____ Unfavorable

C) Flexible-budget Variance ____?_____ Unfavorable

2. Assume that the company includes all setup costs as variable factory overhead. The budgeted total fixed overhead, therefore, is $176,000, and the standard variable overhead rate per setup is $2,550. What is: (a) the total overhead spending variance, (b) the overhead efficiency variance, and (c) the total overhead flexible-budget variance for the year? Label each variance as favorable (F) or unfavorable (U).

A) Spending __?___ unfavorable

B) Efficiency variance __?__ unfavorable

C) Flexible-budget variance __?__ unfavorable

3. Assume that the company uses only machine hours as the activity measure to apply both variable and fixed overhead, and that it includes all setup costs as variable factory overhead. What is (a) the Total Overhead Spending Variance, (b) the Overhead Efficiency Variance, and (c) total Overhead Flexible-Budget Variance for the year? Indicate whether each variance is favorable (F) or unfavorable (U).

A) spending __?__ unfavorable

B) efficiency __?__ unfavorable

C) flexible-budget __?__ unfavorable

Answer 1

Answer :

(1)

	Actual Overhead	Calculations	Budgeted Overhead	Calculations	Standard Overhead
Variable Overhead :
Setup cost		28 x 750	21,000	26 x 750	19,500
Manufacturing Hours		29,000 x 7	203,000	26,000 x 7	182,000
Fixed Overhead			233,600		233,600
Total overhead	492,000		457,600		435,100

(A) Factory overhead spending variance = Actual factory overhead incurred - Budgeted Overhead

= 492,000 - 457600 = $34,400

So, Factory overhead spending variance = $34,400 Unfavorable

(B) Factory overhead Efficiency variance = Budgeted Overhead - Standard Overhead

= $457,600 - $435,100 = $22,500

So, Factory overhead Efficiency variance = $22,500 Unfavorable

(C) Flexible-budget variance = Actual factory overhead incurred - Standard Overhead

= $492,000 - $435,100 = $56,900

So, Flexible-budget variance = $56,900 Unfavorable

(2)

	Actual Overhead	Calculations	Budgeted Overhead	Calculations	Standard Overhead
Variable Overhead :
Setup cost		28 x 2,550	71,400	26 x 2,550	66,300
Manufacturing Hours		29,000 x 7	203,000	26,000 x 7	182,000
Fixed Overhead			176,000		176,000
Total overhead	492,000		450,400		424,300

(A) Factory overhead spending variance = Actual factory overhead incurred - Budgeted Overhead

= 492,000 - 450,400 = $41,600

So, Factory overhead spending variance = $41,600 Unfavorable

(B) Factory overhead Efficiency variance = Budgeted Overhead - Standard Overhead

= $450,400 - $424,300 = $26,100

So, Factory overhead Efficiency variance = $26,100 Unfavorable

(C) Flexible-budget variance = Actual factory overhead incurred - Standard Overhead

= $492,000 - $424,300 = $67,700

So, Flexible-budget variance = $67,700 Unfavorable

(3)

Standard variable overhead application rate = Budgeted variable overhead in the master budget / Practical Capacity

Particulars	Amount
Setup cost [$57,600 + ($750 x 32)] =	$   81,600
Applied based on machine hours (32,000 x $7) =	224,000
Total variable factory overhead @ practical capacity	$ 305,600
Practical capacity (MH)	32,000
Standard variable factory overhead rate/MH	$       9.55

	Actual Overhead	Calculations	Budgeted Overhead	Calculations	Standard Overhead
Variable Overhead		29,000 x 9.55	276,950	26,000 x 9.55	248,300
Fixed Overhead			176,000		176,000
Total overhead	492,000		452,950		424,300

(A) Factory overhead spending variance = Actual factory overhead incurred - Budgeted Overhead

= 492,000 - 452,950 = $39,050

So, Factory overhead spending variance = $39,050 Unfavorable

(B) Factory overhead Efficiency variance = Budgeted Overhead - Standard Overhead

= $452,950 - 424,300 = $28,650

So, Factory overhead Efficiency variance = $28,650 Unfavorable

(C) Flexible-budget variance = Actual factory overhead incurred - Standard Overhead

= $492,000 - $424,300 = $67,700

So, Flexible-budget variance = $67,700 Unfavorable