Question

11.25Overhead variances: manufacturer LO5] standard manufacturing overhead costs per switch are based on direct 1abour hours and are a& follows Bright Spark Ltd is a manufacturer of electrical switches, and uses a standard costing system. The Variable overhead (5 hours$12 per hour) Fixed overhead (5 hours@$18 per hour)* Total overhead $ 60 90 $150 Based on capacity 300000 irect labour hours per month The following information is available for the month of October: 56000 switches were produced, although 60000 switches were budget 275000 direct labour hours were worked at a total cost of $3 825000 Variable overhead costs were $3 510000 Fixed overhead costs were $5625000. Required: Calculate the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for October, Indicate whether each variance is favourable or unfavourable.

Answer 1

step -1

Spending variance arises when difference occurs between the price set and the amount paid by the management.

Efficiency variance arises when the actual production differs from the actual labor hours used.

Calculate variable overhead cost variance as follows.

Standard time required for one complete units is 5 hours.

Standard time required for 56,000 units is 56,000 units * 5 hours = 280,000 Hours

standard	actual
hours	Rate	Total	Hours	Rate	Total
2,80,000	$12.00	3,360,000	275,000	$ 12.76363	3510000

Variable Overhead Spending Variance =(Standard Rate - Actual Rate)* Actual Hours

=($12-12.76363)*275,000

=$ 210,000 Unfavorable

Variable Overhead Efficiency Variance = (standard Hours - Actual Hours)* Standard Rate

= (280,000-275,000)*$12.00

= $ 60,000 Favorable

step-2

Fixed overhead cost variance is the difference between actual overhead incurred and the standard overhead applied for the particular concerns based on the flexible budget.

Fixed Overhead Volume variance is the difference between normal capacity hours and standard hours allowed multiply with the fixed overhead Costs.

Budget	actual
hours	Rate	Total	units	total
60,000	$90.00	5,400,000	56000	5,625,000

Fixed Overhead Budget  Variance = Actual Fixed Over head -Budgeted Fixed overhead

=$5,625,000- $5,400,000

=$ 225,000 Unfavorable

Fixed Overhead Volume Variance = Budgeted Fixed overhead - applied Fixed overhead

= $5,400,000-(56,000*$90.00)

= $3,60,000 Unfavorable

Note:- If this answer was helpful kindly given rating