Question

Homespun Company manufactures pillows. For 2020​, the company expects fixed overhead costs of $120,000. Homespun uses​ machine-hours to allocate fixed overhead costs and anticipates 6,000 hours during the year to manufacture 24,000 pillows. During 2020​, Homespun manufactured 23,000 pillows and spent $116,000 on fixed overhead costs. Calculate the​ following:

a. The fixed overhead rate for 2020

b. The fixed overhead spending variance for 2020

c. The​ production-volume variance for

Answer 1

Ans.

a. Fixed Overhead Rate for 2020

Compute the standard fixed manufacturing rate to be used in 2020

= Expected Fixed Overhead for 2020 / Expected Total Labour Hours

= $120000/6000 = $ 20 per labour hour.

b. The fixed overhead spending variance for 2020:-

Fixed Overhead Expenditure Variance, also known as fixed overhead spending variance, is the difference between budgeted and actual fixed production overheads during a period.

Fixed overhead spending variance = Actual costs − Budgeted costs

= 116000 - (23000*5)

= 116000-115000

= 1000 Adverse because actual cost more than budgeted.

Workings :
Particulars	Amount $
Budgeted Fixed Overhead Costs	120000
Budgeted Direct Lanbour Hours	6000
Standard cost per direct labour hours	20
Standard direct labour Hours per unit	0.25
(6000/24000= 0.25 hour per unit)
Actual Production	23000
Actual Fixed overhead costs	116000
* Standard Fixed Overhead Costs can also be stated on per unit basis as Follows:
Standard cost per labour hour	$20
Standard direct labour hours per unit	*0.25
Standard Fixed Overhead cost per unit	$5

c. Production-volume variance :

= (actual units produced - budgeted production units) x budgeted overhead rate per unit.

= (23000-24000)*5

= 5000 Adverse