In: Accounting
The following information for the past year is available from
Thinnews Co., a company that uses machine hours to apply factory
overhead:
Actual total factory overhead cost | $24,000 |
Actual fixed overhead cost | $10,000 |
Budgeted fixed overhead cost | $11,000 |
Actual machine hours | 5,000 |
Standard machine hours for the units manufactured | 4,800 |
Denominator volume—machine hours | 5,500 |
Standard variable overhead rate per machine hour | $3 |
1.The total actual variable factory overhead cost incurred
during the year was:
2.The standard fixed overhead application rate is:
3. The variable factory overhead efficiency variance is:
4. The variable overhead spending variance is:
5. Under a three-variance breakdown (decomposition) of the total factory overhead variance, the total factory overhead spending variance is:
6. Under a two-variance breakdown (decomposition) of the total factory overhead variance, the total flexible-budget variance is:
Solution:
1)
Total actual variable factory overhead cost incurred during the year was = Total Actual Factory Overhead Cost $24,000 – Actual Fixed overhead cost $10,000 = $14,000
2)
Standard fixed overhead application rate = Total Budgeted Fixed Overhead Cost / Denominator volume—machine hours
= $11,000 / 5,500
= $2 per machine hour
3)
Variable factory overhead efficiency variance = Standard VOH Rate (Actual Hours – Std Hours for Actual Production)
= 3 (5,000 – 4,800)
= 3*200
= $600 Unfavorable
4)
Variable overhead spending variance = Actual VOH Cost – (Actual Machine Hours x Std VOH Rate)
= $14,000 – (5,000*$3)
= $14,000 - $15,000
= $1000 Favorable
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