The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on
ID: 2562865 • Letter: T
Question
The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.
During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.
Compute the variable overhead spending and efficiency variances.
Compute the fixed overhead spending and volume variances.
Compute the controllable variance.
Sedona Company set the following standard costs for one unit of its product for 2015.Explanation / Answer
1)Variable overhead spending variance : Actual cost - [AH*SR]
= 1,375,000- [340,000*4]
= 1,375,000-1,360,000
= 15000 U
Variable overhead efficiency variance = SR[AH-SH]
=4[340000-350000]
= 4 * -10000
= - 40000 F
2)fixed overhead spending Variance : Actual overhead - budgeted overhead
= 628600- 600000
= 28600 U
Fixed overhead volume variance=Budgeted overhead-standard overhead
= 600000-420000
= 180000 U
*Standard fixed overhead = Total fixed overhead* Volume at70%/Volume at normal capacity
= 600000*35000/50000
= $ 420000
3)controllable variance= Actual overhead- Standard cost for actual cost
= 2,003,600- 2,000,000
= $ 3600 U
**Standard variable overhead = 35000*10*4= 1,400,000
Fixed overhead 600,000
Total standard cost = 2,000,000
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