A company has developed the following standard cost data based on a denominator

Question

A company has developed the following standard cost data based on a denominator volume of 60,000 direct labor hours (DLHs), which is 75% of the firm's capacity. Budgeted fixed overhead is $360,000 and budgeted variable overhead is $180,000 at this level of activity.

Direct material (3 lbs at $2.00/lb)                 $6.00

Direct labor (0.5 hrs at $8.00/hr)                   $4.00

Factory overhead (0.5 hrs at $9.00/hr)          $4.50

Total standard cost per unit                         $14.50

  

During the last period, the company used 48,000 DLHs to produce 128,000 units. It incurred the following manufacturing costs:

Actual cost incurred:

Direct material (380,000 lbs) $779,000

Direct labor (63,000 hrs) $507,150

Variable overhead $220,000

Fixed overhead $365,000
  

Required:

a. compute Variable overhead variances

b. compute Fixed Overhead Variances

Explanation / Answer

a) Variable overhead variance

Variable overhead = $ 220000

Direct Labour hours 48000

Variable overhead per hour = $ 220000/48000 = $ 4.58 per hour

Variable overhead rate variance = ($ 4.58- $ 3) X 48000 = $ 76000 U

Variable overhead efficieny variance = ( (220000/128000)- (180000/60000) X 128000 = $ 164000 F

Fixed overhead variance= $ 365000- $ 360000= $ 5000 U

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