Calgary Paper Company produces paper for photocopiers. The company has developed

Question

Calgary Paper Company produces paper for photocopiers. The company has developed standard overhead rates based on a monthly capacity of 80,000 direct-labor hours as follows:

  

   

During April, 26,000 units were scheduled for production: however, only 20,000 units were actually produced. The following data relate to April.

   

Actual direct-labor cost incurred was $1,425,000 for 75,000 actual hours of work.

Actual overhead incurred totaled $1,372,500, of which $472,500 was variable and $900,000 was fixed.

Required:

Prepare two exhibits similar to Exhibit 11-6 and Exhibit 11-8, which show the following variances. State whether each variance is favorable or unfavorable, where appropriate.

Variable-overhead spending variance.

Variable-overhead efficiency variance.

Fixed-overhead budget variance.

Fixed-overhead volume variance.

Fixed-Overhead Budget and Volume Variances. (Select "None" and enter "0" for no effect (i.e., zero variance).)

Standard costs per unit (one box of paper): Variable overhead (3 direct-labor hours @ $4) $ 12 Fixed overhead (3 direct-labor hours @ $12) 36 Total $ 48

Explanation / Answer

Fixed-Overhead Budget And Volume Variances (Hours = Direct-Labor Hours) 1 2 3 Actual Fixed Overhead Budgeted Fixed Overhead Fixed Overhead Applied to Work in Process Standard Allowed Hours x Standard Fixed Overhead Rate 60000 x $                12 hours per hour $900000 $936000 $720000 (26000 x 3 x 12) $36000 Favorable $216000 Unfavorable Fixed overhead budget variance Fixed overhead volume variance

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