The following data are the actual results for Marvelous Marshmallow Company for

Question

The following data are the actual results for Marvelous Marshmallow Company for August.

Actual output 8,000 cases

Actual variable overhead $ 427,000

Actual fixed overhead $ 149,000

Actual machine time 33,400 machine hours

Standard cost and budget information for Marvelous Marshmallow Company follows:

Standard variable-overhead rate $ 12.00 per machine hour

Standard quantity of machine hours 4 hours per case of marshmallows

Budgeted fixed overhead $ 144,000 per month

Budgeted output 12,000 cases per month

Required: 1. Use any of the methods explained in the chapter to compute the following variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

Explanation / Answer

Calculation of variances:

Actual rate=Actual variable overhead/Actual machine hours
=$427000/33400
   =$12.78

Variable overhead expenditure(spending) variance=(Standard rate-actual rate)*actual hours
   =($12-$12.78)*33400
   =($26052) (unfavorable)

Variable overhead efficiency variance=(Standard hours-Actual hours)*Standard rate
   =(4hours*8000-33400)*$12
   =(32000-33400)*$12
   =($16800) (unfavorable)

Fixed overhead budget(expenditure) variance=Budgeted overhead-Actual overhead
=$144000-$149000
   =($5000) (unfavorable)

Fixed overhaed volume variance=Recovered overhead#-Budgeted overhead
   =$96000-$144000
   =($48000) (unfavorable)

#Recovered overhead=actual output*recovery rate [recovery rate=budgeted overhead for month/budgeted output for month
$144000/12000=$12]
=8000*$12
   =$96000

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