Question

Sedona Company set the following standard costs for one unit of its product for this year. Direct material (20 Ibs. @ $3.30 per Ib.) Direct labor (15 hrs. @ $6.00 per hr.) Variable overhead (15 hrs. @ $2.80 per hr.) Fixed overhead (15 hrs. @ $1.20 per hr.) Total standard cost $ 66.00 90.00 42.00 18.00 $216.00 The $4.00 ($2.80 + $1.20) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 58,000 units per month. The following monthly flexible budget information is also available. Operating Levels (% of capacity) 70% 75% 80% 40,600 43,500 46,400 609,000 652,500 696,000 Flexible Budget Budgeted output (units) Budgeted labor (standard hours) Budgeted overhead (dollars) Variable overhead Fixed overhead Total overhead $1,705,200 783,000 $2,488,200 $1,827,000 783,000 $2,610,000 $1,948,800 783,000 $2,731,800 During the current month, the company operated at 70% of capacity, employees worked 575,000 hours, and the following actual overhead costs were incurred

Answer 1

Solution 1:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
575000	$2.82	$1,624,000.00			575000	$2.80	$1,610,000.00			609000	$2.80	$1,705,200.00
			$14,000.00	U				$95,200.00	F
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead rate variance					$14,000.00	U
Variable overhead efficiency variance					$95,200.00	F
Variable overhead cost variance					$81,200.00	F

Solution 2:

Fixed Overhead Cost Variance

Actual Fixed OH Cost

Budgeted Fixed Overhead

Standard Cost (FOH Applies)

SH*

BR

$866,000.00

$783,000.00

609000

$1.20

$730,800.00

$83,000.00

U

$52,200.00

U

Fixed overhead Budget Variance

Fixed overhead volume variance

Fixed overhead Budget Variance

$83,000.00

U

Fixed overhead volume variance

$52,200.00

U

Total Fixed overhead variance

$135,200.00

U

Solution 3:

Overhead controllable variance
Variable Overhead rate Variance	$14,000.00	Unfavorable
Variable overhead efficiency variance	$95,200.00	Favorable
Fixed overhead spending variance	$83,000.00	Unfavorable
Overhead controllable variance	$1,800.00	Unfavorable