Question

The following data are the actual results for Marvelous Marshmallow Company for October. Actual output Actual variable overhead Actual fixed overhead Actual machine time 9,000 cases $418,000 $124,000 39, 400 machine hours Standard cost and budget information for Marvelous Marshmallow Company follows: Standard variable-overhead rate Standard quantity of machine hours Budgeted fixed overhead Budgeted output $ 10.00 per machine hour 4 hours per case of marshmallows $120,000 per month 10,000 cases per month Required: Use any of the methods explained in the chapter to compute the following variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "O" for no effect (i.e., zero variance).) a. Variable-overhead spending variance b. Variable-overhead efficiency variance c. Fixed-overhead budget variance d. Fixed-overhead volume variance

Answer 1

Solution a&b:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
39400	$10.61	$418,000.00			39400	$10.00	$394,000.00			36000	$10.00	$360,000.00
			$24,000.00	Unfavorable				$34,000.00	Unfavorable
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead spending variance					$24,000.00	Unfavorable
Variable overhead efficiency variance					$34,000.00	Unfavorable

Solution c & d:

Fixed Overhead Cost Variance

Actual Fixed OH Cost

Budgeted Fixed Overhead

Standard Cost (FOH Applies)

SH*

BR

$124,000.00

$120,000.00

36000

$3.00

$108,000.00

$4,000.00

Unfavorable

$12,000.00

Unfavorable

Fixed overhead Budget Variance

Fixed overhead volume variance

Fixed overhead Budget Variance

$4,000.00

Unfavorable

Fixed overhead volume variance

$12,000.00

Unfavorable