Fixed Overhead Variances Rostand Inc. operates a delivery service for over 70 re

Question

Fixed Overhead Variances

Rostand Inc. operates a delivery service for over 70 restaurants. The corporation has a fleet of vehicles and has invested in a sophisticated, computerized communications system to coordinate its deliveries. Rostand has gathered the following actual data on last year’s delivery operations:

Rostand employs a standard costing system. During the year, a variable overhead rate of $5.10 per hour was used. The labor standard requires 0.80 hour per delivery.

Assume that the actual fixed overhead was $403,400. Budgeted fixed overhead was $400,000, based on practical capacity of 32,000 direct labor hours.

Required:

1. Calculate the standard fixed overhead rate based on budgeted fixed overhead and practical capacity.
$

2. Compute the fixed overhead spending and volume variances. Enter amounts as positive numbers and select Favorable or Unfavorable.

Deliveries made 38,600 Direct labor 31,000 direct labor hours @ $14.00 Actual variable overhead $157,700

Explanation / Answer

1. Standard fixed overhead rate = $ 400,000 / 32,000 DLH = $ 12.5 per DLH

2.

Spending variance = $ 403,400 - ( $ 12.50 x 31,000) = $ 15,900 U

Volume variance = $ 400,000 - $ 12.50 x 31,000 = $ 12,500 F

Spending Variance $ 15,900 U Volume Variance $ 12,500 F

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