Montoursville Control Company, which manufactures electrical switches, uses a st

Question

Montoursville Control Company, which manufactures electrical switches, uses a standard-costing system. The standard production overhead costs per switch are based on direct-labor hours and are as follows: Variable overhead (4 direct-labor hours$14.00 per hour) Fixed overhead (4 direct-labor hours $26.00 per hour) $ 56 104 Total overhead $160 Based on capacity of 310,000 direct-labor hours per month. The following information is available for the month of October. Variable overhead costs were $5,940,000 Fixed overhead costs were $8,625,000. 74,500 switches were produced, although 77,500 switches were scheduled to be produced. .295,000 direct-labor hours were worked at a total cost of $5,825,000 Required Compute the variable-overhead spending and efficiency variances and the fixed-overhead budget and volume variances for October. (Indicate the effect of each variance by selecting "Favorable" or "unfavorable". Select "None" and enter 0" for no effect zero variance).) Variable-overhead spending variance Variable-overhead efficiency variance Fixed-overhead budget variance Fixed-overhead volume variance

Explanation / Answer

Solution:

Variable Overhead Spending Variance

Actual Variable Overhead (A)

$5,940,000

Standard Variable Overhead (295,000 Hours x $14) (B)

$4,130,000

Variable Overhead Spending Variance (A-B)

$1,810,000

Unfavorable

Variable Overhead Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production

74,500

Switches

x Allowed Standard Hours Per Unit

4

hours

Total Standard Hours Allowed for actual production (SHAP)

298000

hours

Actual Labor Hours Worked (AH)

295000

Hours

Variance or Difference in Quantity (SHAP - AH)

3000

hours

x Standard Hourly Variable Overhead Rate

$14

per hour

Variable Overhead Efficiency Variance

$42,000

Favorable

Fixed Overhead Budgeted Variance

Budgeted Fixed Overheads (BFOH)

(310,000 Budgeted DLHs x $26 per hour)

$8,060,000

Actual Fixed Overheads (AFOH)

$8,625,000

Fixed Overhead Expenditure Variance (BFOH - AFOH)

$565,000

Unfavorable

Fixed Overhead Volume Variance

Absorbed Fixed Overheads (A)

(Actual Direct labor hour worked 295,000 Hours x Budgeted Fixed Overhead Rate $26 per hour)

$7,670,000

Budgeted Fixed Overheads (B)

$8,060,000

Fixed Overhead Volume Variance (A-B)

$390,000

Unfavorable

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Variable Overhead Spending Variance

Actual Variable Overhead (A)

$5,940,000

Standard Variable Overhead (295,000 Hours x $14) (B)

$4,130,000

Variable Overhead Spending Variance (A-B)

$1,810,000

Unfavorable

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