Question

Required information [The following information applies to the questions displayed below.] The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing (factory) overhead. The firm traces all direct costs to products, and it assigns overhead cost to products based on direct labor hours. The company budgeted $15,000 variable factory overhead cost and 2,500 direct labor hours to manufacture 5,000 pairs of boots in March The factory used 2,700 direct labor hours in March to manufacture 4,800 pairs of boots and spent $15,600 on variable overhead during the month. For March, the Platter Valley factory of Bybee Industries budgeted $90,000 for fixed factory overhead cost. Its practical capacity is 2,500 direct labor hours per month (to manufacture 5,000 pairs of boots) The factory used 2,700 direct labor hours in March to manufacture 4,800 pairs of boots. The actual fixed overhead cost incurred for the month was $92,000. The Platter Valley factory of Bybee Industries uses a two-variance analysis of the total factory overhead variance. Required: 1. Compute the total flexible-budget variance for overhead and the production volume variance for March. What was the total factory overhead cost variance for March? Indicate whether each variance is favorable (F) or unfavorable (U) 2. Determine the three components of the total flexible-budget variance for overhead (i.e., the variable overhead spending variance, the variable overhead efficiency variance, and the fixed overhead spending variance); in addition, show the production volume variance for March. Indicate whether each variance is favorable (F) or unfavorable (U).

Answer 1

1)					Flexible
	Particulars			Actual	Budget	Workings	Variance
	Units manufactured			4800	4800
	Variable OH
	Hours			$   2,700.00	$   2,400.00	(2500 x 4800/5000)
	Cost			$ 15,600.00	$ 14,400.00	($ 15000 x 2400/2500)	$ 1,200.00	(Unfavorable)
	Fixed OH			$ 92,000.00	$ 90,000.00		$ 2,000.00	(Unfavorable)
	Total flexible budget variance						$ 3,200.00	(Unfavorable)

2)	Budget (5000 pairs)				Standard (4800 pairs)				Actual (4800 pairs)
	Hour	Rate	Amount		Hour	Rate	Amount		Hour	Rate	Amount
	2500	$      6.00	$ 15,000.00		2400	$      6.00	$ 14,400.00		2700	$      5.78	$ 15,600.00
	Variable OH spending variance =			(Standard Rate - Actual Rate) x Actual Hours
			=	($ 6 - $ 5.78) x 2700
			=	$    600.00	(Favorable)
	Variable OH effi. Variance =			(Standard Hours - Actual Hours) x Standard Rate
			=	(2400 - 2700) x $ 6
			=	$ 1,800.00	(Unfavorable)

Fixed OH
Budgeted Hours			2500
Budgeted OH			$ 90,000.00
Recovery Rate			$         36.00
Standard Hours			2400	(2500 x 4800/5000)
Recovered OH			$ 86,400.00
Actual OH			$ 92,000.00
Fixed OH spending variance =			Budgeted OH - Actual OH
		=	$ 90000 - $ 92000
		=	$   2,000.00	(Unfavorable)
Fixed OH Volume variance =			Recovered OH - Budgeted OH
		=	$ 86400 - $ 90000
		=	$   3,600.00	(Unfavorable)