Simon Enterprises applies variable overhead at a rate of $1.50 per direct labor

ID: 2480750 • Letter: S

Question

Simon Enterprises applies variable overhead at a rate of $1.50 per direct labor hour and fixed overhead at a rate of $1.75 per direct labor hour. The company budgets two direct labor hours for each of the 5,900 units that are scheduled for production. Last year, Simon incurred actual variable overhead totaling $18,750, and actual fixed overhead totaling $21,500, for the production of 6,000 units. In addition, 11,800 direct labor hours were actually incurred.

A. Calculate the variable overhead efficiency variance.

B. Calculate the variable overhead spending variance.

Explanation / Answer

Solution :

direct labour

hours

rate

total

12000

1.50

18,000

standard

(6000*2)

11800

1.59

18,750

actual

(18750 / 11800)

variable overhead efficiency variance.

(standard hours for actual production - actual hours)xstandard rate

300

favourable

(12000-11800)*1.5

variable overhead spending variance

- 1,050

Unfavourable

(standard rate - actual rate)*actual hours = (1.50-1.59)*11800