Question

Meals For You (MFY) operates a meal home-delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who place orders on MFY's website. MFY allocates variable and fixed overhead costs on the basis of delivery time. MFYs owner, Dan Evans, obtains the following information for May 2017 Overhead costs: (Click the icon to view the information.) Read the requirements Requirement 1. Compute spending and efficiency variances for MFY's variable overhead in May 2017 Begin by calculating the following amounts for the variable overhead. (Round your answer to the nearest dollar.) Actual Input FO Actual costs incurred X budgeted rate Flexible budget Variable OH

Answer 1

Variance Analysis of Meals for you for May 2017

(1)Variable Overheads Variance

Standard data (For 12000units)

Hours	Rate	Total
8400(12000u×0.7)	$1.5	$12600

Actual data (For 8300units)

Hours	Rate	Total
5620	$2	$11240

Revised Standard data(For 8300units)

Hours	Rate	Total
5810(8300u×0.7)	$1.5	$8715

Variable overhead spending Variance

=Actual Overheads-standard recovered Overheads for actual Output

=$11240-$8715

=$2525 adverse

Variable overhead efficiency Variance

=Standard rate per hour(Standard hours - Actual hours)

=$1.5(5810-5620)

=$285 favourable

Variable Overhead expenditure variance

=Actual hours(Actual rate-standard rate)

=5620($2-$1.5)

=$2810 adverse

(2)Fixed Overhead Variance

Absorption rate per unit

=Budgeted Overheads÷Budgeted output

=$33600÷12000u

=$2.8 per unit

Absorbed Overheads=8300u×$2.8p.u=$23240

Actual Overheads=$38700

Fixed Overhead Spending Variance

=Actual Overheads - Absorbed Overheads

=$38700-$23240

=$15460 adverse

Fixed Overhead Expenditure Variance

=Standard Overheads-Actual Overheads

=$33600-$38700

=$5100 adverse

Fixed Overhead Volume Variance

=(Budgeted units-Actual units)Absorption rate per unit

=(12000u-8300u)×$2.8

=$10360 adverse

(3)

Based on the variance Analysis given in (1) above one could clearly observe that the variance is majorly due to difference between standard rate and actual rate for hour, due to which the company suffered negative variance even after being efficient, evident from efficiency variance given in (1) above.

So the company could change its standard rate , commensurate with the actual Output, and revise its standard rate per hour, that is to say to keep its standard near to achievable budget.