Underfoot Products uses standard costing. The following information about overhe

Question

Underfoot Products uses standard costing. The following information about overhead was generated during May:

Compute the variable overhead variance.

$21,000 (U)

$11,000 (F)

$1,000 (U)

$21,000 (F)

Standard unit costs generally do not include which of the following?

Indirect materials costs

Depreciation on machinery

Direct materials costs

President's salary

Standard variable overhead rate $2 per machine hour Standard fixed overhead rate $1 per machine hour Actual variable overhead costs $361,000 Actual fixed overhead costs $175,000 Budgeted fixed overhead costs $190,000 Standard machine hours per unit produced 10 Good units produced 18,000 Actual machine hours 200,000

Explanation / Answer

CALCULATION OF VARIABLE OVERHEAD VARIANCE

VARIABLE OVERHEAD EFFICIENCY VARIANCE=Standard overhead rate x (Actual hours - standard hours)
=$2(2,00,000 HOURS-(10HOURS*18,000UNITS))

=$40,000 (U)

VARIABLE OVERHEAD SPENDING VARIANCE=Actual hours worked x (Actual overhead rate - standard overhead rate)
=2,00,000HOURS(($3,61,000/2,00,000HOURS)-$2)

=2,00,000HOURS($1.805-$2)

=$39,000 (F)

VARIABLE OVERHEAD VARIANCE=VARIABLE OVERHEAD EFFICIENCY VARIANCE+VARIABLE OVERHEAD SPENDING VARIANCE=$40,000(U)+( - $39,000(F))

=$1,000 (U)

HENCE c.$1,000(U) IS CORRECT

STANDARD UNIT COSTS GENERALLY DO NOT INCLUDE

d.PRESIDENT'S SALARY

UNIT COST IS THE COST INCURRED BY A COMPANY TO PRODUCE,STORE AND SELL ONE UNIT OF A PARTICULAR PRODUCT .UNIT COSTS INCLUDE ALL FIXED COSTS(I.E PLANT AND EQUIPMENT) AND ALL VARIABLE COSTS (I.E LABOUR,MATERIALS,ETC.) INVOLVED IN PRODUCTION.PRESIDENT'S SALARY IS
NOT A COST INVOLVED IN PRODUCTION.

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

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