Question

Sedona Company set the following standard costs for one unit of its product for this year Direct material (30 Ibs.@ $2.20 per Ib.) Direct labor (10 hrs. @ $4.60 per hr.) Variable overhead (10 hrs. @ $3.00 per hr.) Fixed overhead (10 hrs. @ $1.50 per hr.) $66.00 46.00 30.00 15.00 $157.00 Total standard cost The $4.50 ($3.00+ $1.50) total overhead rate per direct labor hour is based on an expected operating level equal to 70% of the factory's capacity of 65,000 units per month. The following monthly flexible budget information is also avallable Operating Levels (% of capacity) 75% Flexible Budget Budgeted output (units) Budgeted labor (standard hours) Budgeted overhead (dollars) Variable overhead 65% 70% 45,500 48,750 42,250 422,500 455,000 487,500 $1,267,500 682,500 $1,950,000 $1,365,000 $1,462,500 682,500 682,500 Fixed overhead $2,047,500 $2,145,000 Total overhead During the current month, the company operated at 65% of capacity, employees worked 400,000 hours, and the following actual overhead costs were incurred. Variable overhead costs $1,224,000 730,000 $1,954,000 Fixed overhead costs Total overhead costs

Answer 1

Solution 1:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
400000	$3.06	$1,224,000.00			400000	$3.00	$1,200,000.00			422500	$3.00	$1,267,500.00
			$24,000.00	U				$67,500.00	F
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead rate variance					$24,000.00	U
Variable overhead efficiency variance					$67,500.00	F
Variable overhead cost variance					$43,500.00	F

Solution 2:

Fixed Overhead Cost Variance

Actual Fixed OH Cost

Budgeted Fixed Overhead

Standard Cost (FOH Applies)

SH*

BR

$730,000.00

$682,500.00

422500

$1.50

$633,750.00

$47,500.00

U

$48,750.00

U

Fixed overhead Budget Variance

Fixed overhead volume variance

Fixed overhead Budget Variance

$47,500.00

U

Fixed overhead volume variance

$48,750.00

U

Total Fixed overhead variance

$96,250.00

U

Solution 3:

Overhead controllable variance
Variable Overhead rate Variance	$24,000.00	Unfavorable
Variable overhead efficiency variance	$67,500.00	Favorable
Fixed overhead spending variance	$47,500.00	Unfavorable
Overhead controllable variance	$4,000.00	Unfavorable