Please provide explenation for the below question: Costello Corporation manufact

Question

Please provide explenation for the below question:

Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. The predetermined manufacturing overhead rate is S12 per direct labor hour ($30.00 2.50). It was computed from a master manufacturing overhead budget based on normal production of 12,500 direct labor hours (5,000 units) for the month. The master budget showed total variable costs of $93,750 ($7.50 per hour) and total fixed overhead costs of $56,250 ($4.50 per hour). Actual costs for October in producing 4,500 units were as follows. The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored. Compute the overhead controllable variance and the overhead volume variance.

Explanation / Answer

COmputation of OH controllable Variance

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COntrollable vatiance is difference between epenses incurred and budget allowance based on Std hrs allowed for work performed. This variance may be favorable or Unfavorable. OH controllable variance will be found using formulas:-

OH controllable varance = Actual OH - OH Budgeted

= (101520+35350)- (4500*2.5*$7.50+56250)

= 3755 F

COmputation of OH VOlume Variance

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OH Vol variance = Fixed OH rate*(Normal capaicy Hrs - Std Hrs allowed)

= $4.50*(12500 - 2.50*4500))

= $5,625 U

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