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Better Fitness Gear applies overhead on the basis of direct labor hours. Five direct labor hours...


Better Fitness Gear applies overhead on the basis of direct labor hours. Five direct labor hours are required for each unit produced. Planned production for the period was set at 8,000 units. Budgeted fixed manufacturing overhead for the period is budgeted at $20,000 and variable manufacturing overhead is budgeted at $100,000. The 48,500 hours worked during the period resulted in production of 9,500 units. Actual manufacturing overhead cost incurred was $156,000.

Required:

Calculate the three overhead variances:

a.      Total Spending Variance

b.      Total Efficiency Variance

c.      Total Volume Variance

d.      Proof: Total Factory Overhead Variances

e.      Interpret your variances

Solutions

Expert Solution

a)

Spending Variance= Budgeted Overhead- Actual Overhead

                                   =$138,750- $156,000

                               =($17,250)

b)

Total Efficiency Variance= Budgeted labour hours-Actual Labour Hours

                                        =        5Hours*9500     -              48,500

                                                             = 47,500-48,500

                                                             = (1,000)

Total Volume variance- 9500 units- 8000 units= 1500 Units.

Though company has able to increase their production capacity from 8000 to 9500 units but still they have utlised more labour and spent more on manfutured overhead, Here it has assumed theActual fixed manufacturing Overhead is considered same as the budgeted one i.e $20,000.

ekkarill92 answered 2 years ago
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