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Zepol Company is planning to produce 600,000 power drills for the coming year. The company uses...

Zepol Company is planning to produce 600,000 power drills for the coming year. The company uses direct labor hours to assign overhead to products. Each drill requires 0.75 standard hour of labor for completion. The total budgeted overhead was $1,777,500. The total fixed overhead budgeted for the coming year is $832,500. Predetermined overhead rates are calculated using expected production, measured in direct labor hours. Actual results for the year are: Actual production (units) 594,000 Actual variable overhead $928,000 Actual direct labor hours (AH) 446,000 Actual fixed overhead $835,600 1. Compute the applied fixed overhead 2. Compute the fixed overhead spending and volume variances 3 Compute the applied variable overhead 4. Compute the variable overhead spending and efficiency variances.

Solutions

Expert Solution

1) Fixed OH

Budgeted power drills 600000
Std hr to produce each drill 0.75
Budgeted Labour Hrs (600000*0.75) 450000 hrs
Budgeted OH 832500
Applied rate(832500/450000) 1.85
Actual Labour Hrs 446000
Fixed OH recovered (446000*1.85) 825100
Actual FOH 835600
FOH spending Variance (Budget - Actual) 3100 unfavorable
FOH Volume Variance (Recovered - Budget) 7400 unfavorable

2) Variable OH

Total budgeted OH 1777500
Budgeted FOH 832500
Budgeted Variable OH (1777500-832500) 945000
Budgeted Labour Hrs 450000
Applied Rate/ Std Rate (945000/450000) 2.1
Actual power drills 594000
Std Lab hr for each drill 0.75
Std Lab hrs for 594000 drills 445500
Actual Variable OH 928000
Actual Lab Hrs 446000

Variable OH Spending Variance = (Std Rate - Actual Rate)* Actual Lab Hrs = (2.1 - Actual Rate)*Actual lab Hrs = 2.1*Actual lab hrs - Actual rate * Actual Lab Hrs = 2.1*446000 - Actual Variable OH = 936600 - 928000 = 8600 favorable

Variable Efficiency Variance = (Std hrs - Actual Hrs) * Std rate = (445500 - 446000) * 2.1 = 1050 unfavorable

ekkarill92 answered 1 year ago
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