Hennings Travel Company specializes in the production of travel items, (clocks,

Question

Hennings Travel Company specializes in the production of travel items, (clocks, personal care kits). The following data were so that a variance anlysis could be performed:

Forecast Data (Expected Capacity)

Direct labor hours                 40,000

Estimated overhead:

Fixed                                         $16,000

Variable                                   $ 30,000

Actual Results:

Direct labor hours                 37,200

Overhead:

Fixed                                      $16,120

Variable                                $ 28,060

The number of standard hours allowed for actual production was 37,000.

1- Calculate the variable overhead spending variance.

2- Calculate the variable overhead efficiency variance.

3- Calculate the fixed overhead volume variance.

4- Calculate the fixed overhead spending variance.

Explanation / Answer

Hi,

Please find the answer as follows:

1) Variable Overhead Spending Variance = Actual Hours*(Actual Variable Overhead Rate - Standard Variable Overhead Rate) = 37200*(28060/37200 - 30000/40000) = 160 (Favorable)

2) Variable Overhead Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours) = 30000/40000*(37200 - 40000) = 2100 (Favorable)

3) Fixed Overhead Volume Variance = Fixed Overhead Cost Absorbed - Budgeted Fixed Overhead Cost = 16000/40000*37200 - 16000 = 1120 (Unfavorable)

4) Fixed Overhead Spending Variance = Budgeted Fixed Overhead Cost - Actual Fixed Overhead Incurred = 16000 - 16120 = 120 (Unfavorable)

Thanks.

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