Question

The following data relate to factory overhead cost for the production of 4,000 computers:

Actual:	Variable factory overhead	$130,000
	Fixed factory overhead	33,000
Standard:	4,000 hrs. at $39	156,000

If productive capacity of 100% was 6,000 hours and the total factory overhead cost budgeted at the level of 4,000 standard hours was $167,000, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $5.5 per hour. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Variance	Amount	Favorable/Unfavorable
Variable factory overhead controllable variance	$
Fixed factory overhead volume variance
Total factory overhead cost variance	$

Answer 1

(1)

variable factory overhead controllable variance = actual variable factory overhead - budgeted variable factory overhead

= $130000 - {4000 x ($39 - $5.5)}

= $130000 - $134000

= -$4000 Favorable

Note: don’t forget to put a minus sign before the favorable variance

(2)

Fixed factory overhead volume variance = fixed factory overhead rate x (Standard hours for 100% of normal capacity - Standard hours for actual units produced)

= $5.5 x (6000 - 4000)

= $11000 Unfavorable

(3)

Total factory overhead cost variance = -$4000 Favorable + $11000 Unfavorable

= $7000 Unfavorable