Question

Hunter Industries manufactures hunting boots. The firm assigns overhead cost to products based on direct labor hours. For November, the budget reported total overhead of $ 162,000, of which $ 130,500 was fixed. Practical capacity is 4,500 direct labor hours per month to manufacture 6,000 pairs of boots. The factory used 4,600 direct labor hours to manufacture 5,700 pairs of boots. For November, actual variable overhead cost incurred was $ 31,510; actual fixed overhead cost incurred was $ 133,000.

1. What was the variable overhead efficiency variance?

2. What was the total fixed overhead cost variance?

3. What was the flexible-budget variance?

4. What was the production volume variance?

5. Was overhead over/under applied and by how much?

Answer 1

QUESTION
1	Variable Overhead Efficiancy Variance=Standard Over head rateX (Actual Hours-Standard hours)
	Standard Over Head Rate=Total Budgeted Overhead/Level of activity(Direct labour hours)
	Budgeted Overhead($)	162000
	Direct Labour Hours(Standard)	4500
	Standard Overhead Rate ($)	36	(162000/4500)
	Actual labour Hours	4600
	Variable Overhead Efficiancy Variance	3600
	A favorable variance means that the actual hours worked were less than the budgeted hours
	Here Actual Hours is more than Budgeted Hours. So its Unfavourable
2	Total Fixed Overhead Cost variance
	Total Fixed Overhead Cost variance=Absorbed fixed overhead-actual fixed overhead incurred
	Absorbed fixed overhead=Actual OutputX Fixed Overhead absorption rate
	Fixed Overhead absorption rate	Budgeted Fixed Overhead
		Budgeted Output
	Budgeted Fixed Overhead ($)	130500
	Budgeted Output(Units)	6000
	Fixed Overhead absorption rate $	21.75
	Actual Output(Units)	5700
	Absorbed fixed overhead($)	123975	(5700X21.75)
	Actual fixed overhead($)	133000
	Total Fixed Overhead Cost variance	-9025
	(123975-133000)
3	Flexible Budget Variance
		Per Unit	Budget	Flexible Budget	Actual	Variance
	Units		6000	5700	5700
	Budgeted Variable Overhed Cost	5.25	31500	29925	31510	-1585	Unfavourable
		(31500/6000)		(5700*5.25)
	Budgeted Fixed Overhead $		130500	130500	133000	-2500	Unfavourable
	Total Budgeted Overhead		162000	160425	164510	-4085	Unfavourable
4	Production Volume Variance
	Production volume variance = (actual units produced - budgeted production units) x budgeted overhead rate per unit
	Actual Output	5700
	Budgeted Output	6000
	Budgeted Overhead rate Per unit	36
	Production Volume Variance	-10800
	When actual production is lower than budgeted production, production volume variance is unfavorable
5	If the overheads absorbed are higher than the actual overheads incurred, it is called over absorption.
	If the overhead absorbed is lower than the actual overheads incurred , it is called under absorption.
	Absorbed fixed overhead($)	123975	(5700X21.75)
	Actual fixed overhead($)	133000
	It is Under absorbed