Question

Factory Overhead Cost Variances

The following data relate to factory overhead cost for the production of 6,000 computers:

Actual:	Variable factory overhead	$229,900
	Fixed factory overhead	65,000
Standard:	6,000 hrs. at $46	276,000

If productive capacity of 100% was 10,000 hours and the factory overhead cost budgeted at the level of 6,000 standard hours was $302,000, determine the variable factory overhead Controllable Variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $6.5 per hour. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Variance	Amount	Favorable/Unfavorable
Controllable variance	$
Volume variance	$
Total factory overhead cost variance:	$

Answer 1

Note :

• Standrad factory overhead = $46 per hour ;
• Standrad fixed factory overhead rate = $6.5 per hour
• Standrad variable factory overhead rate = $46 - $6.5 = $39.50 per hour

Variance	Formula & working	Amount	Favorable/Unfavorable
Controllable variance	Actual Variable factory o/h - (Std hrs * Std.var factory o/h per hr) $229,900 - ( 6,000 hrs * $39.50)	($7,100)	Favorable
Volume variance	Actual Fixed factory o/h - (Std hrs * Std.fixed factory o/h per hr) $65,000 - (6,000 hrs * $6.5)	$26,000	Unfavorable
Total factory overhead cost variance:	Actual total factory o/h -  (Std hrs * Std.factory o/h per hr) ($229,900 + $65,000) - (6,000 hrs * $46)	$18,900	Unfavorable

Note :

• Controllable variance is favaorable as actual variable factory overhead cost is less than standard variable factory overhead cost.
• Volume variance is unfavorable as actual fixed factory overhead cost is less than standard fixed factory overhead cost.
• Total factory overhead cost variance is unfavorable as actual factory overhead cost is less than standard factory overhead cost.