Question

At the beginning of the year, Fort Worth Manufacturing estimated that its annual variable factory overhead would be $923,400, and its fixed factory overhead would be $1,798,200. The company's payroll consisted of 27 direct labor employees, and each was expected to work 1,800 direct labor hours. Fort Worth applies overhead to products based on direct labor hours. Each finished unit produced by the company is anticipated to require four direct labor hours. Actual production and cost information for the year is as follows: (a) Variable overhead variances Actual cost of variable overhead Total units produced Actual variable overhead Actual fixed overhead Actual labor hours $ $ 12,000 910,000 1,750,000 45,500 Standard hours Standard rate per hour Standard cost of variable overhead a) Compute the variable overhead variances. b) Compute the fixed overhead variances. 1]]]]] Actual use at standard cost Total favorable variable overhead variance Variable overhead spending variance Variable overhead efficiency variance (b) Fixed overhead variances Actual cost of fixed overhead

Answer 1

Solution a:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
45500	$20.00	$910,000.00			45500	$19.00	$864,500.00			48000	$19.00	$912,000.00
			$45,500.00	Unfavorable				$47,500.00	Favorable
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead rate variance					$45,500.00	Unfavorable
Variable overhead efficiency variance					$47,500.00	Favorable
Variable overhead cost variance					$2,000.00	Favorable

solution b:

Fixed Overhead Cost Variance

Actual Fixed OH Cost

Budgeted Fixed Overhead

Standard Cost (FOH Applies)

SH*

BR

$1,750,000.00

$1,798,200.00

48000

$37.00

$1,776,000.00

$48,200.00

Favorable

$22,200.00

Unfavorable

Fixed overhead Budget Variance

Fixed overhead volume variance

Fixed overhead Budget Variance

$48,200.00

Favorable

Fixed overhead volume variance

$22,200.00

Unfavorable

Total Fixed overhead variance

$26,000.00

Favorable