Exercise 11-32 Overhead Variances (LO 11-5) Montoursville Control Company, which
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Question
Exercise 11-32 Overhead Variances (LO 11-5)
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:
*Based on capacity of 303,000 direct-labor hours per month.
The following information is available for the month of October.
Variable overhead costs were $4,260,000.
Fixed overhead costs were $6,525,000.
57,600 switches were produced, although 60,600 switches were scheduled to be produced.
281,000 direct-labor hours were worked at a total cost of $4,425,000.
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 (i.e., zero variance).)
Variable overhead (5 direct-labor hours @ $12.00 per hour) $ 60 Fixed overhead (5 direct-labor hours @ $18.00 per hour)* 90 Total overhead $ 150 Variable-overhead spending variance Variable-overhead efficiency variance Fixed-overhead budget variance Fixed-overhead volume variance nfavorable Favorable nfavorable nfavorableExplanation / Answer
Answer:-
Standard cost = Standard rate hour*stanadard hour per unit*Actual units
=$12 per hour *5 standard hours per unit*57600 switches
= $3456000
Actual cost = $4260000
Variable overhead efficiency variance = (Standard rate – Actual rate) * Actual hours
= ($12 per hour - $4260000/281000 hours)* 281000 hours
= $888000 Unfavourable
Variable overhead spending variance=(Standard hours-Actual hours)*Standard rate per hour
=(288000 hours – 281000 hours)*$12 per hour
= $84000 Favourable
Where:-
Standard hours = Standard hours per unit*Actual units
=5 standard hours per unit*57600 switches
= 288000 hours
Variable overhead cost variance = Standard cost – Actual cost
= $3456000-$4260000 = $804000 Unfavourable
Variable overhead cost variance = Spending varaiance + Efficiency varaiance
Fixed overhead budget variance = Budgeted overhead – Actual overhead
=( 303000 hours * $18 per hour) - $6525000
= $1071000 Unfavourable
Fixed overhead volume variance = Recovered overhead – Budgeted overhead
= (288000 hours * $18 per hour) – (303000 hours *$18 per hour)
= $270000 Unfavourable
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