Question

Montoursville Control Company, which manufactures electrical switches, uses a standard-costing system. The standard production overhead costs per switch are based on direct-labor hours and are as follows: Variable overhead (5 direct-labor hours @ $12.00 per hour) Fixed overhead (5 direct-labor hours @ $20.00 per hour)* Total overhead $ 60 100 $160 *Based on capacity of 304,000 direct-labor hours per month. The following information is available for the month of October. • Variable overhead costs were $4,500,000. • Fixed overhead costs were $6,825,000. • 57,800 switches were produced, although 60,800 switches were scheduled to be produced. • 283,000 direct-labor hours were worked at a total cost of $4,625,000. Required: Compute the variable-overhead spending and efficiency variances and the fixed-overhead budget and volume variances for October. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "O" for no effect (i.e., zero variance).) Variable-overhead spending variance Variable-overhead efficiency variance Fixed-overhead budget variance Fixed-overhead volume variance

Answer 1

Solution:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
283000	$15.90	$4,500,000.00			283000	$12.00	$3,396,000.00			289000	$12.00	$3,468,000.00
			$1,104,000.00	U				$72,000.00	F
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead spending variance					$1,104,000.00	U
Variable overhead efficiency variance					$72,000.00	F
Variable overhead cost variance					$1,032,000.00	U

Fixed Overhead Cost Variance

Actual Fixed OH Cost

Budgeted Fixed Overhead

Standard Cost (FOH Applies)

SH*

BR

$6,825,000.00

$6,080,000.00

289000

$20.00

$5,780,000.00

$745,000.00

U

$300,000.00

U

Fixed overhead Budget Variance

Fixed overhead volume variance

Fixed overhead Budget Variance

$745,000.00

U

Fixed overhead volume variance

$300,000.00

U

Total Fixed overhead variance

$1,045,000.00

F