Hyteck, Inc. is a capital intensive firm. Indirect costs make up nearly 70% of t

Question

Hyteck, Inc. is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labour hours, are derived from the master budget.

Master Actual Budget Results

Units produced 2,000 1,820

Direct labour hours 10,000 9,200

Fixed overhead $100,000 $98,000

Variable overhead $160,000 $150,000

Direct labour $100,000 $90,000

What would be the budget variance for variable overhead was and the direct labour efficiency variance?

Explanation / Answer

Calculation of budget variance for variable overhead:

Variable Overhead as per master Budget

$     160,000

Variable Overhead as per Flexible Budget (160000*1820 / 2000)

$     145,600

Budget variance for variable overhead = 160000-145600 =

$      14,400

Favorable

Calculation of direct labor efficiency variance:

Formula :

Direct labor efficiency variance = (Actual Hours - Standard Hours) * Standard Rate

Actual Hours = 9200

Standard Hours = 10000*1820 / 2000 = 9100

Standard Rate = 100000 / 10000 = $10

Hence,

Direct labor efficiency variance = (9200- 9100) * 10 =

$        1,000

Unfavorable

Calculation of budget variance for variable overhead:

Variable Overhead as per master Budget

$     160,000

Variable Overhead as per Flexible Budget (160000*1820 / 2000)

$     145,600

Budget variance for variable overhead = 160000-145600 =

$      14,400

Favorable

Calculation of direct labor efficiency variance:

Formula :

Direct labor efficiency variance = (Actual Hours - Standard Hours) * Standard Rate

Actual Hours = 9200

Standard Hours = 10000*1820 / 2000 = 9100

Standard Rate = 100000 / 10000 = $10

Hence,

Direct labor efficiency variance = (9200- 9100) * 10 =

$        1,000

Unfavorable

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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