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.

Deliveries made 38,600 Direct labor 31,000 direct labor hours @ $14.00 Actual variable overhead $157,700 Required: 1. Calculate the standard fixed overhead rate based on budgeted fixed overhead and practical capacity. Round your answer to the nearest cent. 2. Compute the fixed overhead spending and volume variances. Spending variance Volume variance

Explanation / Answer

1. Standard fixed overhead rate = Budgeted fixed overhead/Practical capacity = $400000/32000 DLH = $12.50 per DLH

2. Spending variance = Budgeted fixed overheads - Actual fixed overheads = $400000 - $403400 = $3400 Unfavorable

Volume variance = Budgeted fixed overheads - Applied overheads = $400000 - (31000 x $12.50) = $400000 - $387500 = $12500 Unfavorable

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