10-4 Variable Overhead Variances Assume that the best cost driver that Sony has

Question

10-4

Variable Overhead Variances
Assume that the best cost driver that Sony has for variable factory overhead in the assembly department is machine hours. During April, the company budgeted 580,000 machine hours and $6,000,000 for its Texas plant's assembly department. The actual variable overhead incurred was $6,200,000, which was related to 600,000 machine hours.

Do not round until your final answers. Round your answers to the nearest dollar.

(a) Determine the variable overhead spending variance.
$

(b) Determine the variable overhead efficiency variance.

Explanation / Answer

Answer:

1) Variable overhead spending variance = (Standard rate per hour - Actual rate per hour) Actual No. of hours used.

= ( 10.3448 - 10.3333) 600,000

= (0.012) * 600,000

= $ 6,900 (Favorable)

Workings:

Standard rate per hour = Budgeted overhead cost / Budgeted no. of hours = 6,000,000 / 580,000 = $ 10.3448

Actual rate per hour = Actuals overhead cost / Actual no. of hours used = 6,200,000 / 600,000 = $ 10.3333

2) Varaible overhead efficiency variance = ( Standard hours - Actual hours used ) * Standard rate per hour

= ( 580,000 - 600,000 ) * 10.3448

= 20,000 * 10.3448 = $ 206,900 (Unfavorable)

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