Question

Question 26 Pointe Claire Company applies overhead based on direct labour hours. Two direct labour hours are required for each unit of product. Planned production for the period was set at 8,300 units. Manufacturing overhead is budgeted at $124,500 for the period (20% of this cost is fixed). The 16,290 hours worked during the period resulted in the production of 8,000 units. The variable manufacturing overhead cost incurred was $100,800 and the fixed manufacturing overhead cost was $28,400. Calculate the variable overhead spending variance for the period. Variable overhead spending variance Calculate the variable overhead efficiency (quantity) variance for the period. Variable overhead efficiency variance Calculate the fixed overhead budget (spending) variance for the period. Fixed overhead budget variance Calculate the fixed overhead volume variance for the period. Fixed overhead volume variance

Answer 1

Solution:

We need to find out first Standard Variable Overhead and standard fixed overhead from the data of planned production.

Total budgeted manufacturing overhead = $124,500

Budgeted Fixed Manufacturing Overhead = $124,500 * 20% = $24,900

Standard Variable Manufacturing Overhead = $124,500 total – Fixed $24,900

= $99,600

Budgeted direct labor hours = Planned production 8,300 Units x Required labor hour each unit 2 = 16,600 Hours

Standard variable manufacturing overhead per direct labor hour = Total Std variable overhead $99,600 / Budgeted direct labor hour 16,600

= $6 per direct labor hour

Std fixed overhead rate per direct labor hour = Total Fixed Overhead $24,900 / Budgeted DLHs 16,600

= $1.50 per direct labor hour

Calculation of Variable Spending and Efficiency Variance

Variable Overhead Rate/Spending Variance
Actual Hourly Variable Overhead Rate (Total actual $100,800 / Actual hours 16,290)	6.19	Per Hour
Standard Hourly Variable Overhead Rate	6.00	Per Hour
Variance or Difference in Rate	0.19	Per Hour
x Actual Hours Worked	16290	Hours
Variable Overhead Rate/Spending Variance	$3,060	Unfavorable
Variable Overhead Efficiency/Quantity Variance
Standard Hours Allowed for actual production:
Actual Production	8,000	Pools
x Allowed Standard Hours Per Unit	2	Hours
Total Standard Hours Allowed for actual production (SHAP)	16000	Hours
Actual Hours Worked (AH)	16290	Hours
Variance or Difference in Hours	290	hours
x Standard Hourly Variable Overhead Rate	$6.00	per hour
Variable Overhead Efficiency Variance	$1,740	Unfavorable

Calculation of fixed overhead spending and volume variance

Fixed Overhead Expenditure/Spending/Budget Variance
Budgeted Fixed Overheads (BFOH)	$24,900
Actual Fixed Overheads (AFOH)	$28,400
Fixed Overhead Expenditure Variance	$3,500	Unfavorable
Fixed Overhead Volume Variance
Budgeted Fixed Manufacturing Overheads	$24,900
Fixed Overhead Cost Applied (Refer Note)	$24,000
Fixed Overhead Volume Variance	$900	Unfavorable
Note:
Std labor hours allowed for the actual output (8,000 Units * 2)	16000	Direct labor hour
Std Fixed Overhead Rate per labor hour	$1.50	Per labor hour
Applied Fixed Overhead Cost	$24,000

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