Question

15-51 Standard Cost Variance Analysis and Interpretations Glavine & Co. produces a single prod- uct, each unit of which requires three direct labor hours (DLHs). Practical capacity (for setting the factory overhead application rate) is 30,000 DLHs, on an annual basis. The information below per- tains to the most recent year: Standard direct labor hours (DLHs) per unit produced 3.00 Practical capacity, in DLHs (per year) 30,000 Variable Overhead Efficiency Variance $5,000 unfavorable (U) Actual production for the year 9,500 units Budgeted fixed manufacturing overhead $600,000 Standard direct labor wage rate $20.00 per DLH Total overhead cost variance for the year $50,000 favorable (F) Direct Labor Efficiency Variance $10,000 unfavorable (U) Required 1. What was the actual number of direct labor hours (DLHs) worked during the year? (Round answer to nearest whole number.) [Hint: Recall from Chapter 14 that the DL Efficiency Variance = SP × (SQ ? AQ), where SP = standard labor rate per hour, SQ = standard # of DLHs for output produced, and AQ = actual number of DLHs worked.] 2. What was the standard variable overhead rate per DLH during the year? (Round answer to 2 decimal places, e.g., $13.231 = $13.23.) [Hint: Recall that the Variable Overhead Efficiency Variance = SP × (SQ ? AQ), where [assuming variable overhead is applied on the basis of DLHs] SP = standard variable overhead cost per DLH, SQ = standard # of DLHs for output produced, and AQ = actual # of DLHs worked during the period.] 3. What was the total overhead application rate per direct labor hour (DLH) during the year? (Round answer to 2 decimal places, e.g., $15.679 = $15.68.) 4. What was the total actual overhead cost incurred during the year, rounded to the nearest whole dollar? 5. What was the Production Volume Variance (to the nearest whole dollar) for the year? Was this variance favorable (F) or unfavorable (U)? 6. What was the total Overhead Spending Variance (to the nearest whole dollar) for the year? Was this variance favorable (F) or unfavorable (U)?

Answer 1

Solution 1:

Direct labor efficiency variance = $10000 U

(SH - AH) * SR = -$10,000

(9500*3 - AH)*$20 = - $10,000

Actual hours = 29000 hours

Solution 2:

Variable overhead efficiency variance = $5,000 U

(SH - AH) * SR = - $5,000

(28500 - 29000)*SR = -$5,000

standard rate of variable overhead = $10 per direct labor hour

Solution 3:

Fixed overhead application rate = Budgeted fixed manufacturing overhead / Budgeted direct labor hours

= $600,000 / 30000 =$20 per direct labor hour

Variable overhead rate = $10 per direct labor hour

total overhead application rate per direct labor hour = $20 + $10 = $30 per DLH

Solution 4:

Fixed overhead applied = SH * SR = (9500*3) * $20 = $570,000

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead = $570,000 - $600,000 = $30,000 U

Total overhead cost varianace = $50,000 F

Total overhead spending variance = Total overhead cost variance - Fixed overhead volume variance

= $50,000 F - $30,000 U = $80,000 F

Budgeted total overhead = (9500*3*$10)+ $600,000 = $885,000

Total actual overhead cost incurred during the year = $885,000 - $80,000 = $805,000

Solution 5:

Fixed overhead applied = SH * SR = (9500*3) * $20 = $570,000

Production volume variance = Fixed overhead applied - Budgeted fixed overhead = $570,000 - $600,000 = $30,000 U

Solution 6:

Total Overhead Spending Variance = Total overhead cost variance - Fixed overhead volume variance

= $50,000 F - $30,000 U = $80,000 F