Save Homework: Week #5 Chapter #8 score: 0 of 1 pt 4 of 6 (3 complete) HW Score:

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Save Homework: Week #5 Chapter #8 score: 0 of 1 pt 4 of 6 (3 complete) HW Score: 50%, 3 of 6 pts E23-20 (similar to) E Question Help Great Fender is a competitor ot Deluxe Fender. Great Fender also uses a standard cost system and provide the following information EB(Click the icon to view the information.) Great Fender allocates manufacturing overhead to production based on standard direct labor hours. Great Fender reported the following actual results for 2016: actual number of fenders produced, 20,000, actual variable overhead, $4,610, actual fixed overhead, $32,000, actual direct labor hours, 420 Read the requirements Requirement 1. Compute the overhead variances for the year variable overhead cost variance,vaniable overhoad eficency variance, fhed overhead costvariance, and fixed overhead volume variance. variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identity f whether each variance ls favorable (F) or untavorable (U) (Abbreviations used Ac w actual cost, Ao - actual quanthy, FOH sQ standard quantity,VOH variable overhead.) Formula Variance Actual VOH . (SCX AO) VOH cost variance VOH efficiency variance

Explanation / Answer

Solution 1:

Standard direct labor hours for actual production = 20000 * 0.028 = 560 hours

Actual direct labor hours = 420

Standard rate of variable overhead = $3,640 / 728 = $5 per direct labor hour

Actual rate of variable overhead = $4,610 / 420 = $10.97619 per direct labor hour

Variable overhead cost variance = (SR - AR) * AH = ($5 - $10.97619) * 420 = $2,510 U

Variable overhead efficiency variance = (SH - AH) * SR = (560 - 420) * $5 = $700 F

Budgeted fixed overhead = $29,120

Actual fixed overhead = $32,000

Budgeted overhead rate per direct labor hour = 29120 / 728 = $40 per direct labor hour

Fixed overhead applied = 560 * $40 = $22,400

Fixed overhead cost variance = Budgeted overhead - Actual overhead = $29,120 - $32,000 = $2,880 U

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead

= $22,400 - $29,120 = $6,720 U

Solution 2:

Actual cost can never be equal to standard cost as standard are based on past experience and considering future enviorment. Standards are just estimates only and it is natural that actual results may differ from budget. therefore when difference arises standard and actual, same are called variances. If actual cost is less than standard cost then variances is considered as favorable as we have incurred lesser cost than budgeted. If actual cost is higher than standard cost then variances are considered as unfavorable as we have incurred higher cost than standard.

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