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Alden Company uses a two-variance analysis for overhead variances. Practical capacity is defined as 36 setups...

Alden Company uses a two-variance analysis for overhead variances. Practical capacity is defined as 36 setups and 36,000 machine hours to manufacture 7,200 units for the year. Selected data for 2016 follow: Budgeted fixed factory overhead: Setup $ 57,600 Other 265,000 $ 322,600 Total factory overhead incurred $ 494,000 Variable factory overhead rate: Per setup $ 650 Per machine hour $ 4 Total standard machine hours allowed for the units manufactured 24,000 hours Machine hours actually worked 28,000 hours Actual total number of setups 32 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 the (a) overhead spending variance, (b) efficiency variance, and (c) flexible-budget variance for the year?

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Expert Solution

Standard machine hour per unit = 36000/7200 5
no of unit manufactured = std allowed machine hour/std machine hour p.u(24000/5) 4800
Budgeted no of unit per set ups = unit/no of setups (7200/36) 200 unit
std no of setup for unit manufactured (4800/200) 24
hence spending variance = (variable oh+fixed oh +actual oh)
variable oh = (650*32)+(28000*4) 132800
fixed overhead 322600
actual overhead 494000
hence spending variance = 132800+322600-494000 = (38600) unfavourable
B) Efficiency variance = (24*650+24000*4+322600-455400)
(21200) unfavourable
C) Flexible bugdet variance = spending variance +efficiency variance
                                                             21200+38600
                                                                59800 unfavourable

ekkarill92 answered 1 year ago
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