5. Computing and interpreting factory overhead variances Cranium Creations devel

Question

5. Computing and interpreting factory overhead variances

Cranium Creations develops, produces, and distributes a line of intellectually challenging and stimulating games. The company's accounting department has accumulated the following information for the purpose of computing and interpereting the company's factory overhead variances.

Please complete the following and choice one answer :

A. Based on the preceding information, what is Cranium Creations' variable factory overhead controllable variance?

B. Based on the preceding information, what is Cranium Creations' fixed factory overhead volume variance?

Standard hours at 100% of normal capacity 8,300 Actual hours for actual units produced 9,100 Standard hours for actual production 8,700 Variable factory overhead rate $5.00 per hr. Fixed factory overhead rate $3.25 per hr. Actual variable factory overhead $57,350 Actural fixed factory overhead $27,600

Explanation / Answer

CONTROLLABLE VARIANCE
=actual factory overhead - budgeted allowance on Std hours

= 57350 - 43500

= $ 13850 U

If the actual factory overhead is more than the budget allowance based on standard hours allowed for work performed, the variance is called unfavorable controllable variance.

B)

The fixed overhead volume variance is the difference between the amount of fixed overhead actually applied to produced goods based on production volume, and the amount that was budgeted to be applied to produced goods.

= 3.25 * 8700 - 3.23 * 9100

= 28275 - 29575

= $1300 U

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