Exercise 23-11 Computation of volume and controllable overhead variances LO P3 W
ID: 2653104 • Letter: E
Question
Exercise 23-11 Computation of volume and controllable overhead variances LO P3
World Company expects to operate at 80% of its productive capacity of 57,500 units per month. At this planned level, the company expects to use 25,300 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $70,840 fixed overhead cost and $298,540 variable overhead cost. In the current month, the company incurred $368,000 actual overhead and 22,300 actual labor hours while producing 43,000 units.
Compute the overhead volume variance. (Round all your intermediate calculations to 2 decimal places.)
Compute the overhead controllable variance.
World Company expects to operate at 80% of its productive capacity of 57,500 units per month. At this planned level, the company expects to use 25,300 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $70,840 fixed overhead cost and $298,540 variable overhead cost. In the current month, the company incurred $368,000 actual overhead and 22,300 actual labor hours while producing 43,000 units.
Explanation / Answer
1. Compute the overhead volume variance.
Solution-
Fixed Overhead applied
Fixed OH per DL hour
2.8($70,840 /25,300)
Standard DL hours
23,650
Fixed Overhead applied
$66,220 (23,650*2.8)
Volume variance
Total budgeted fixed OH
$70,840
Less-Total fixed overhead applied
$66,220
Fixed overhead volume variance
$4,620 U
Calculation for Standard DL hours….
Assumed production budget of World Company's = 57,500*80% = 46,000 Units
Standard direct labor hours = 25,300 Units / 46,000 Units = 0.55 per unit
The standard hrs to produce 43,000 units= 23,650 hours
2. Compute the overhead controllable variance.
Solution-
Overhead controllable variance
Total overhead variance
$22,710 U
Volume variance
$4,620 U
Overhead controllable variance
$18,090 U
Calculation of Total Overhead…..
Variable OH rate = $298540 / $70840 = 11.80 Per DLH
Total OH Rate = Variable OH rate + Fixed OH per DL hour
Total OH Rate = 11.80 + 2.80 = 14.60 per DLH
Appl OH = 23,650 hours* 14.60 per DLH
Appl OH = $345,290
Total OH Variance = $368,000 - $345,290
Total OH Variance = $22,710 U
Fixed Overhead applied
Fixed OH per DL hour
2.8($70,840 /25,300)
Standard DL hours
23,650
Fixed Overhead applied
$66,220 (23,650*2.8)
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