Computation of volume and controllable overhead variances World Company expects

Question

Computation of volume and controllable overhead variances

World Company expects to operate at 80% of its productive capacity of 60,000 units per month. At this planned level, the company expects to use 26,400 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $39,600 fixed overhead cost and $316,800 variable overhead cost. In the current month, the company incurred $353,000 actual overhead and 23,400 actual labor hours while producing 45,000 units.

(all input information is correct)

Compute the overhead volume variance. (Round all your intermediate calculations to 2 decimal places.) Fixed Overhead applied Fixed OH per DL hr. Standard DL hours Fixed Overhead applied Volume variance Total budgeted fixed OH Total fixed overhead applied Fixed overhead volume variance Compute the overhead controllable variance. Overhead controllable variance Total overhead variance Volume variance Overhead controllable variance Unfavorable Unfavorable Unfavorable

Explanation / Answer

**Standard hour required per unit = 26400 /60000 = .44 per unit

Variable OH rate per hour = 316800 / 26400 =$ 12 per hour

Overhead variance =Actual -Standard

                        = 353,000 - [(12 * .44 *45000) + 39600]

                      = 353000 - [237600+39600]

                     = 353000 - 277200

                      = 75800 (U)

Fixed overhead applied Fixed OH per DL hr    [39600 /26400] $ 1.5 Standard direct labor hours    [45000 *.44] 19800 Fixed overhead applied   [1.5*19800] 29700

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