The Supertramp Company uses standard costing. Overhead is charged to units using

Question

The Supertramp Company uses standard costing. Overhead is charged to units using direct labor hours. The standard for direct labor is 2.5 hours per unit at $20 per hour. At a level of 50,000 standard direct labor hours, a budget for the company shows $400,000 in variable overhead and $800,000 in fixed overhead. The 50,000 hours is the denominatoor level for the company. The company actually produced 24,000 units during the year, and actually used 47,000 direct labor hours to produce these units. The actual variable overhead incurred during the year was $371,000. The actual fixed overhead incurred during the year was $820,000.

Compute the variable overhead spending/rate and efficiency variances.

Explanation / Answer

Variable overhead spending variance = (Actual hour worked*VOAR+) - Actual Variable overhead

                                                                    = (47,000*8) – 371,000

                                                                    = 5,000 (F)

+Variable overhead absorption rate (VOAR) = Budgeted Variable overhead/Budgeted labour hour

                                                                             = 400,000/50,000

                                                                             = 8

Variable overhead efficiency variance = (Standard hour –Actual hour worked )*VOAR
                                                                     = (50,000-47,000)*8

                                                                      = 24,000 (F)

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