Question

Use the following information of Alfred Industries.

Standard manufacturing overhead based on normal monthly volume:
Fixed ($300,300 ÷ 20,000 units)	$	15.02
Variable ($100,000 ÷ 20,000 units)		5.00		$	20.02
Units actually produced in current month					18,000	units
Actual overhead costs incurred (including $300,000 fixed)				$	383,800

Compute the overhead spending variance and the volume variance. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

Overhard spending variance:

Overhard volume variance:

Answer 1

Standard:

Standard cost per unit = $20.02
Fixed overhead = $300,300
Variable overhead per unit = $5.00

Actual:

Number of units produced = 18,000
Actual overhead costs incurred = $383,800

Budgeted overhead for actual production = Fixed overhead + Variable overhead per unit * Actual Number of units produced
Budgeted overhead for actual production = $300,300 + $5.00 * 18,000
Budgeted overhead for actual production = $390,300

Overhead Spending Variance = Actual overhead costs incurred - Budgeted overhead for actual production
Overhead Spending Variance = $383,800 - $390,300
Overhead Spending Variance = $6,500 Favorable

Overhead applied at Standard cost = Standard cost per unit * Actual Number of units produced
Overhead applied at Standard cost = $20.02 * 18,000
Overhead applied at Standard cost = $360,360

Overhead Volume Variance = Budgeted overhead for actual production - Overhead applied at Standard cost
Overhead Volume Variance = $390,300 - $360,360
Overhead Volume Variance = $29,940 Unfavorable