Question

VanDerPloeg, Inc. produces farm equipment at several plants. The business is seasonal and cyclical in nature. The accountant for the Denver plant uses flexible budgeting to help the plant management control operations. Data for Denver follows: Budget data for the year: Normal monthly capacity of the plant in direct labor hours 12,000 hours Materials costs (6 lbs. @ $1.50) $9.00/unit Labor costs (2 hours @ $12.00) $24.00/unit Overhead estimate at normal monthly capacity: Variable (controllable) Indirect labor $ 6,750 Indirect materials 600 Repairs 750 Total variable $ 8,100 Fixed (noncontrollable): Depreciation $ 5,000 Supervision 4,000 Total fixed $ 9,000 Total fixed and variable $ 17,100 Actual data for January: Units produced 3,900 Costs incurred Materials (24,000 lbs.) $ 36,000 Direct labor 91,500 Indirect labor 5,000 Indirect materials 600 Repairs 900 Depreciation 5,000 Supervision 4,000 Total $143,000 a. Compute the fixed and variable factory overhead application rates per unit of production. b. Assuming VanDerPloeg uses the two-variance method of analyzing factory overhead, compute the two overhead variances.

Answer 1

a)	Variable FOH application rate per unit = (8100/12000)*2 =	$       1.35
	Fixed FOH application rate per unit = (9000/12000)*2 =	$       1.50
b)	Actual variable overhead incurred = 5000+600+900 =	$     6,500
	Actual fixed overhead incurred = 5000+4000 =	$     9,000
	VARIANCES:
	Variable FOH rate variance = 6500-3900*1.35 =	1235	Favorable
	Variable FOH efficiency variance cannot be calculated as
	actual labor hours is not available.
	Fixed FOH Budget variance = 9000-9000 =	0
	Fixed FOH Volume variance = (6000-3900)*1.5 =	3150	Unfavorable