Sharp Company manufacturers jeans. In June, Sharp made 1200 pairs of jeans, but

Question

Sharp Company manufacturers jeans. In June, Sharp made 1200 pairs of jeans, but had budgeted production at 1400 pairs of jeans. The allocation base for overhead costs is direct labor hours. The following additional data is available for the month:

Variable overhead cost standard $0.60 per DLHr

Direct labor efficiency standard 2.00 DLHr per jean

Actual amount of direct labor hours 2520 DLHr

Actual cost of variable overhead $1512

Fixed overhead cost standard $0.25 per DLHr

Budgeted fixed overhead $700

Actual cost of fixed overhead $750

Calculate variable overhead efficiency variance and fixed ovehead volume variance, show work.

Explanation / Answer

Solution:

Standard direct labor hours for actual production = 1200 * 2 = 2400 hours

Actual direct labor hours = 2520 hours

Standard rate of variable overhead = $0.60 per DLHr

Variable overhead efficiency variance = (SH - AH) * SR = (2400 - 2520) * $0.60 = $72 U

Budgeted fixed overhead = $700

Fixed overhead applied = SH * SR = 2400 * $0.25 = $600

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

= $600 - $700 = $100 F

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