Question

Required information [The following information applies to the questions displayed below.] Sedona Company set the following standard costs for one unit of its product for 2017. Direct material (20 Ibs. @ $3.20 per Ib.) $ 64.00 Direct labor (10 hrs. @ $8.30 per hr.) 83.00 Factory variable overhead (10 hrs. @ $4.70 per hr.) 47.00 Factory fixed overhead (10 hrs. @ $2.30 per hr.) 23.00 Standard cost $ 217.00 The $7.00 ($4.70 + $2.30) total overhead rate per direct labor hour is based on an expected operating level equal to 60% of the factory's capacity of 57,000 units per month. The following monthly flexible budget information is also available. Operating Levels (% of capacity) Flexible Budget 55% 60% 65% Budgeted output (units) 31,350 34,200 37,050 Budgeted labor (standard hours) 313,500 342,000 370,500 Budgeted overhead (dollars) Variable overhead $ 1,473,450 $ 1,607,400 $ 1,741,350 Fixed overhead 786,600 786,600 786,600 Total overhead $ 2,260,050 $ 2,394,000 $ 2,527,950 During the current month, the company operated at 55% of capacity, employees worked 295,000 hours, and the following actual overhead costs were incurred. Variable overhead costs $ 1,411,000 Fixed overhead costs 858,050 Total overhead costs $ 2,269,050 AH = Actual Hours SH = Standard Hours AVR = Actual Variable Rate SVR = Standard Variable Rate SFR = Standard Fixed Rate

1. Compute the variable overhead spending and efficiency variances.

2. Compute the fixed overhead spending and volume variances and classify each as favorable or unfavorable.

3. Compute the controllable variance.

Answer 1

1)

Actual Variable OH Cost				Flexible Budget				Standard Cost (VOH Applied)
AH	x	AVR		AH	x	SVR		SH	x	SVR
295,000.00	X	4.78		295,000.00	X	4.70		313,500.00	X	4.70
	1,411,000.00				1,386,500.00				1,473,450.00
			24,500.00				86,950.00
Variable Overhead Spending Variance				24,500.00	Unfavorable
Variable Overhead Efficiency Variance				86,950.00	Favorable
Total Variable Overhead Cost Variance				62,450.00	Favorable

2)

Actual Fixed OH Cost				Fixed OH				Standard Cost (FOH Applied)
				-				SH	x	SFR
								313,500.00	-	2.30
	858,050.00				786,600.00				721,050.00
			71,450.00				65,550.00
Fixed Overhead Spending Variance				71,450.00	Unfavorable
Fixed Overhead Volume Variance				65,550.00	Unfavorable
Total Fixed Overhead Cost Variance				137,000.00	Unfavorable

3)

Controllable Variance
Variable Overhead Spending Variance	24,500.00	Unfavorable
Variable Overhead Efficiency Variance	86,950.00	Favorable
Fixed Overhead Spending Variance	71,450.00	Unfavorable
Controllable Variance	9,000.00	Unfavorable