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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