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 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. Variable overhead costs Fixed overhead costs Total overhead costs $1,624,000 866,000 $2,490,000 AH = Actual Hours SH = Standard Hours AVR = Actual Variable Rate SVR = Standard Variable Rate

Answer 1

89 1. Compute the variable overhead spending and efficiency variances. х SVR Actual Variable OH Cost AH 575000 x 1,624,000 AVR 2.82 Flexible Budget AH 575000 1,610,000 Standard Cost (VOH applied) SH SVR 609000 1,705,200 2.8 2.8 14,000 95,200 98 99 100 Variable Overhead Spending Variance Variable Overhead Efficiency Variance Total Variable Overhead Cost Variance 14,000 (U) 95,200 (F) 81,200 (F) 101 102

103 2. Compute the Fixed overhead spending and efficiency variances. 104 105 106 Actual Fixed OH Cost Fixed Overheads (Fixed Budgeted) Standard Cost (VOH applied) 107 SH SVR 108 609000 1.2 109 x 730,800 866,000 783,000 83,000 52,200 110 111 112 113 Fixed Overhead Spending Variance Fixed Overhead Volume Variance Total Fixed Overhead Cost Variance 83,000 (U) 52,200 (U) 135,200 (0) 114 116 3 Compute the Controllable Variance 118 119 Fixed Overhead Spending Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance Fixed Overhead Volume Variance Controllable Variance 83,000 (U) 14,000 (U) 95,200 (F) 52,200 (U) 54,000 (U)