Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.J Trico Company set the following standard unit costs for its single product. Direct materials (30 Ibs. $4 per Ib.) Direct labor (5 hrs. e $14 per hr.) Factory overhead-variable (5 hrs. $8 per hr.) Factory overhead-fixed (5 hrs. C $10 per hr.) Total standard cost $120.00 70.00 40.00 50.00 $280.00 The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available. Operating Levels 70% 42,000 210,000 80% 48,000 240,000 90% Production in units Standard direct labor hours Budgeted overhead 54,000 270,000 Fixed factory overhead Variable factory overhead $2,400,000 $2,400,000 $2,400,000 $1,680,000 $1,920,000 $2,160,000 During the current quarter, the company operated at 90% of capacity and produced 54,000 units of product; actual direct labor totaled 265,000 hours. Units produced were assigned the following standard costs

Explanation / Answer

a) Actual Variable OH cost = Actual Hours*Actual Variable OH Rate

Actual Hours = 265,000 hrs

Actual Variable OH Rate = Actual Variable Overhead costs/Actual Hours

= $2,200,000/265,000 = $8.30 per hour

Actual Variable OH cost = 265,000 hrs*$8.30 per hour = $2,199,500

Flexible Budget = Actual Hours*Standard Variable OH Rate

Standard Variable OH Rate = $8 per hour (as given in the question)

Flexible Budget = 265,000 hours*$8 per hour = $2,120,000

Standard Cost (VOH applied) = Standard Hours*Standard Variable OH Rate

= 270,000 hours*$8 per hour = $2,160,000

Variable Overhead Spending Variance = Flexible Budget - Actual Variable OH cost

= $2,120,000 - $2,199,500 = ($79,500) Unfavorable

Variable Overhead Efficiency Variance = Standard Cost (VOH applied) - Flexible Budget

= $2,160,000 - $2,120,000 = $40,000 Favorable

Total Variable Overhead Variance = VOH spending variance+VOH efficiency variance

= ($79,500)+$40,000 = ($39,500) Unfavorable

b) Actual Fixed OH cost = Actual Hours*Actual Fixed OH Rate

= 265,000*(2,350,000/265,000) = $2,350,000

Budgeted Overhead = $2,400,000 (given in the question)

Standard Cost (FOH applied) = Standard Hours*Standard Fixed OH Rate

= 270,000 hours*$10 per hour = $2,700,000

Fixed Overhead spending Variance = Budgeted OH - Actual Fixed OH cost

= $2,400,000 - $2,350,000 = $50,000 Favorable

Fixed Overhead Efficiency Variance = Standard cost (FOH applied) - Budgeted OH

= $2,700,000 - $2,400,000 = $300,000 Favorable

Total Fixed OH cost variance = Fixed OH spending variance+Fixed OH efficiency variance

= $50,000+$300,000 = $350,000 Favorable

c) Calculation of Total Overhead controllable variance

Variable OH spending Variance ($79,500) Unfavorable Variable OH efficiency Variance $40,000 Favorable Fixed OH spending Variance $50,000 Favorable Total Overhead Controllable Variance $10,500 Favorable

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