Question

Splish Clothiers is a small company that manufactures tall-men’s suits. The company has used a standard cost accounting system. In May 2020, 10,400 suits were produced. The following standard and actual cost data applied to the month of May when normal capacity was 15,080 direct labor hours. All materials purchased were used.

Cost Element		Standard (per unit)		Actual
Direct materials		6 yards at $4.50 per yard		$276,760 for 62,900 yards ($4.40 per yard)
Direct labor		1.55 hours at $13.80 per hour		$240,264 for 16,920 hours ($14.20 per hour)
Overhead		1.55 hours at $7.40 per hour (fixed $4.90; variable $2.50)		$48,800 fixed overhead $36,500 variable overhead

Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were $73,892, and budgeted variable overhead was $37,700.

Compute the overhead controllable variance and the overhead volume variance.

Overhead controllable variance		$		Neither favorable nor unfavorable/Favorable/Unfavorable
Overhead volume variance		$		Neither favorable nor unfavorable/Favorable/Unfavorable

Answer 1

overhead controllable variance
A	Actual Expenses
	PARTICULARS	NO OF YARD	RATE	AMOUNT ( $ )
	DIRECT MATERIALS	62900	4.4	276,760
	DIRECT LABOUR	16920	14.2	240,264
	OVERHEAD- FIXED			48,800
	OVERHEAD- VARIABLE			36,500
	TOTAL			602,324
B	BUDGETED
	DIRECT MATERIALS	62900	4.5	283,050
	DIRECT LABOUR	16920	13.8	233,496
	OVERHEAD- FIXED			73,892
	OVERHEAD- VARIABLE			37,700
	TOTAL			628,138
	DIFFERENCE ( A- B)			(25,814)
	Overhead Controllable Variance is define as difference between
	actual expenses and budgeted expenses based on the standard hours
	allowed.
	If the actual factory overhead is more that the budgeted overhead based
	on the standard hours allowed the particular work performed the
	variance is called un-favorable Controllable Variance.
	On the other hand If the actual factory overhead is less than the budgeted overhead based
	on the standard hours allowed the particular work performed the
	Variance is called favorable Controllable Variance.
	Conclusion : Actual overhead is less than the budgeted overhead & it’s a
	favorable controllable variance.
	OVERHEAD VOLUMN VARIENCE
	The is calculated difference between the amount of Fixed Overhead actually
	applied to the good manufactured and the amount that was budgeted to the
	applied to the good manufactured .
	In our above worked sheet Actual Fixed Overhead is $ 48800 against budget
	Fixed Overhead is $ 73892.
	Conclusion : Actual Fixed Overhead is less than the Budgeted Fixed Overhead.
	It’s a favorable Overhead Volume Variance
	Generally unfavorable variable used to highlighted problem that may negative impact of profit..
	Thus, it is necessary to review the underlying reasons for a unfavorable variance before concluding that
	there is actually a problem.

When actual overhead is equal to the budgeted overhead than called neither favourable nor unfavourable .Its applicale both the overhead conctolled varience & Overhead Volume Varience.