Question

Fixed Overhead Variances

Rostand Inc. operates a delivery service for over 70 restaurants. The corporation has a fleet of vehicles and has invested in a sophisticated, computerized communications system to coordinate its deliveries. Rostand has gathered the following actual data on last year’s delivery operations:

Deliveries made		38,600
Direct labor		31,000	direct labor hours @ $14.00
Actual variable overhead		$157,700

Rostand employs a standard costing system. During the year, a variable overhead rate of $5.10 per hour was used. The labor standard requires 0.80 hour per delivery.

Assume that the actual fixed overhead was $403,400. Budgeted fixed overhead was $400,000, based on practical capacity of 32,000 direct labor hours.

Required:

1. Calculate the standard fixed overhead rate based on budgeted fixed overhead and practical capacity.
$

2. Compute the fixed overhead spending and volume variances. Enter amounts as positive numbers and select Favorable or Unfavorable.

Spending variance		$
Volume variance		$

Answer 1

• Working

	Hrs	Rate	Amount
Budgeted Fixed Overhead	32000	$                12.50	$        400,000.00
Standard Fixed Overhead or Fixed Overhead absorbed	30880 [38600 deliveries x 0.80 hours]	$                12.50	$        386,000.00

• Requirement 1 = $ 400,000 / 32000 hours = $ 12.50
• Requirement 2

--Spending Variance = $ 3400 U
--Volume Variance = $ 14000 U

Fixed Overhead Spending Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$           400,000.00	-	$          403,400.00	)
	-3400
	Variance		3400			Unfavourable-U

Fixed Overhead Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed = 30880 hours x $ 12.50	-	Budgeted Fixed Overhead	)
(	$           386,000.00	-	$          400,000.00	)
	-14000
	Variance		14000			Unfavourable-U