E23-20 Computing overhead variances Grand Fender is acompetitor of Pro Fender. G

Question

E23-20 Computing overhead variances

Grand Fender is acompetitor of Pro Fender. Grand Fender also uses a standard cost system and provides the following information:

Grand Fender allocates manufacturing overhead to production based on standard direct labor hours. Grand Fender reported the following actual results for 2016: actual number of fenders produced, 20,000; actual variable overhead, $5,200; actual fixed overhead, $24,000; actual direct labor hours, 480.

Requirements

1. Compute the overhead variance for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.

2. Explain why the variances are favorable or unfavorable

Static budget variable overhead $5,630 Static budget fixed overhead $22,520 Static budget direct labor hours 563 hours Static budget number of units 21,000 units Standard direct labor hours 0.026 hours per fender

Explanation / Answer

1) Actual hours worked x (Actual overhead rate - standard overhead rate)= Variable overhead spending variance
Variable overhead spending variance = 480 dlhx (5200/480 )- (5630/563) =
Variable overhead spending variance = 480dlh x (10.83 - $10) = $399.99 (UF)
2)variable overhead efficiency variance = Standard overhead rate x (Actual hours - standard hours)
Variable overhead efficiency variance = ($5630/563) x ( 480 - 520) = 400 (F)
0.026 DLHr per fender × 20,000 fenders = 520 standard DLHr
3)Fixed overhead cost variance = Actual fixed overhead - Budgeted fixed overhead
Fixed overhead cost variance = $24000 - $22,520 = $1480 (UF)
4) Fixed overhead volume variance = (units produced - budgeted production)  x  budgeted overhead rate
fixed overhead volume variance = (20000 - 21000) x 22520/21000
fixed overhead volume variance = 1000 x 1.072 = 1072.38 (UF)

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.