Zeta, Inc., produces handwoven rugs. Budgeted production is 5,000 rugs per month
ID: 2535038 • Letter: Z
Question
Zeta, Inc., produces handwoven rugs. Budgeted production is 5,000 rugs per month, and the standard direct labor required to make each rug is 2 hours. All overhead is allocated based on direct labor hours. Zeta’s manager is interested in what caused the recent month’s $3,000 unfavorable overhead variance. The following information was available to aid in the analysis.
a. What was the overhead spending variance for the month?
b. What was the overhead volume variance?
(For all requirements, Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)
Budgeted Amounts Actual Results Production in units 5,000 4,500 Total labor hours 10,000 9,000 Total variable overhead $ 60,000 $ 55,000 Total fixed overhead 40,000 38,000 Total overhead $ 100,000 $ 93,000Explanation / Answer
Answer for a)
Overhead spending variance for the month:
((Budgeted overhead rate per rug×standard rugs)-actual overhead)
(($100000/5000units×4500 rugs)-$93000)
$3000 Unfavorable.
Overhead volume variance:
(Standard volume-actual volume)×standard rate
(5000units-4500units)×$100000/5000units
$10000 Unfavorable
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