Need help! Required: 1) Calculate the fixed overhead spending variance for Barle

Question

Need help!

Required:

1) Calculate the fixed overhead spending variance for Barley Hopp.

2) Calculate the fixed overhead volume variance for Barley Hopp.

3) Calculate the total over- or underapplied fixed manufacturing overhead for Barley Hopp.

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows: Direct materials (clay) Direct labor Variable (based on direct labor hours) Fixed manufacturing overhead ($487,500 195,000 units) Standard Quantity 1.8 lbs 1.8 hrs 1.8 hrs Standard Price (Rate) $ 1.90 per lb $ 16 per hr $1.1 per hr Standard Unit Cost $ 3.42 28.80 1.98 manufacturing overhead 2.50 Barley Hopp had the following actual results last year: Number of units produced and sold Number of pounds of clay used Cost of clay Number of labor hours worked Direct labor cost Variable overhead cost Fixed overhead cost 200,000 368,200 $736,400 245,000 $5,806,500 $ 390,000 $ 470,000

Explanation / Answer

1. Fixed overhead spending variance = Actual fixed overhead - Budgeted fixed overhead

= $470000 - $487500 = ($17500) (Favourable)

2. Fixed overhead volume variance = Absorbed Fixed Overheads - Budgeted Fixed Overheads

Absorbed Fixed Overheads = Units produced * Standard Fixed Overhead absorption rate

= 200000 units * $2.50 = $500000

Budgeted Oveheads = Budgeted Production * Standard Fixed Overhead absorption rate

= 195000 units * $2.50 = $487500

Fixed overhead volume variance = $500000 - $487500 = $12500 (Favourable)

3. Total over- or underapplied fixed manufacturing overhead= Actual Fixed Overheads - Budgeted Fixed Overheads

= $470000 - $487500 = ($17500)

The overheads are overapplied by $17500. This is because actual fixed overheads are $470000 while the company would have made provision for $487500.

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