The company applies variable manufacturing overhead at a standard rate of $2 per

Question

The company applies variable manufacturing overhead at a standard rate of $2 per direct labor hour. The standard quantity of direct labour is three hours per unit. Variable overhead costs totaled $32, 000 for the month of September. A total of 14, 700 direct labor hours were worked during September to produce 5, 100 sleeping bags. Required: Calculate the variable overhead spending variance and variable overhead efficiency variance. Clearly label each variance as favourable or unfavorable. The company applies fixed manufacturing overhead costs to products based on direct labour hours. Information for the month of September appears as follows. Outdoor Products expected to produce and sell 5,000 units for the month. Calculate the fixed overhead spending variance and production volume variance. Clearly label each variance as favorable or unfavorable

Explanation / Answer

(39)

Variable overhead spending variance = Actual hours x (Actual rate - Standard rate)

= Actual variable overhead cost - Actual hours x Standard rate

= $32,000 - 14,700 x $2 = $(32,000 - 29,400) = $2,600 (Unfavorable)

Variance overhead efficiency variance = Standard rate x (Actual hours - Standard hours)

= $2 x [14,700 - (3 x 5,100)] = $2 x (14,700 - 15,300) = $2 x 600 = $1,200 (Favorable)

NOTE: First question is answered.

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