Question

Sunny Day Company makes customized golf shirts for sale to golf courses. Each shirt requires 3 hours to produce because of the customized logo for each golf course. Sunny Day uses direct labor-hours to allocate the overhead cost to production. Fixed overhead costs, including rent, depreciation, supervisory salaries, and other production expenses, are budgeted at $15,000 per month. The facility currently used is large enough to produce 1,000 shirts per month. During March, Sunny Day produced 760 shirts and actual foxed costs were $11,600 Read the requirements Requirements 1 & 2. Calculate the fixed overhead spending variance and indicate whether it is favorable (F) or unfavorable (U). I Sunny Day Uses direct labor-hours available at capacity to calculate the budgeted foxed overhead rate, what is the production-volume variance? Indicate whether it is favorable (F) or unfavorable (U). Begin by determining the formula then computing the fixed overhead rate per direct labor hour. (Round the food overhead rate to the nearest cont.) Budgeted foxed overhead costs Budgeted hours at capacity = Fixed overhead rate 15,000 3,000 ES 5.00 Next, complete the following table. Actual Costs Static Allocated Incurred Budget Overhead

Answer 1

As it is not mentioned which question to answer, I will answer the first one as in Requirement 1 & 2:

Requirement 1

As we know the formula for Fixed overhead spending cost is Actual Cost - Budgeted costs

So our Actual Fixed Overhead cost is $11600

Budgeted Cost is $15000

Fixed overhead spending cost is = 11600-15000

= -$4400 As the Actual spending cost is lower it is Favourable

Requirement 2

As mentioned that Sunny Day uses direct labours available as basis for calculating the budgeted fixed overhead rate i.e for every one labour hour it has allotted some $x. In this case we are aware that it has capacity to manufacture 1000 shirts and one Shirt takes 3 hours to manufacture. So if we divide the budgeted Fixed overhead cost by total man hours available, we get the per hour rate. In this case 15000/(3*1000) = $5

Now as the per hour rate is $5 and calculate the Budgeted Fixed Overhead Cost for production of 760 shirts

i.e No of Shirts * Per hour fixed budgeted overhead * No of hours required to manufacture one shirt

= 760 * 5 * 3

= $11400

The Production-volume variance is Budgeted Production Volume overhead - Actual Production Volume Overhead

=11400-11600

=-$200

It is unfavourable as the actual cost were higher than the budgeted by $200