Question

The following information relates to Longman, Inc.'s overhead costs for the month: B Click the icon to view the information.) Requirements 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable. Requirement 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. Begin by selecting the formulas needed to compute the variable overhead (VOH) and fixed overhead (FOH) variances, and then compute each variance amount. Actual overhead - (Standard hours allowed x Standard cost) = VOH cost variance (Actual hours - Standard hours allowed) x Standard cost VOH efficiency variance Actual overhead - Budgeted overhead = FOH cost variance Budgeted overhead - Allocated overhead = FOH volume variance II II 11

Choose the correct bolded choices to complete the sentences.

The variable overhead cost variance is (favorable, unfavorable) because Longman actually spent (less, more) than budgeted.

The variable overhead efficiency variance is (favorable, unfavorable) because the actual hours used was (more, less) than budgeted.

The fixed overhead cost variance is (favorable, unfavorable) because Longman actually spent (less, more) than budgeted for fixed overhead.

The fixed overhead volume variance is (favorable, unfavorable) because Longman allocated (more, less) overhead to jobs than the budgeted fixed overhead amount.

Answer 1

Question 1

Variable Overhead Cost Variance = (Standard Variable Overhead Rate per Unit * Actual Units) - Actual Variable Overhead

Actual Variable Overheads = $ 10,500

Actual Production in Units = 7,400 Units

Standard Variable Overhead Rate per Unit = 8,000 / 4,000 Units = $ 2 per Unit

Variable Overhead Cost Variance = (2 * 7,400) - 10,500

Variable Overhead Cost Variance = 14,800 - 10,500

Variable Overhead Cost Variance = $ 4,300 Favourable Variance

Variable Overhead Efficiency Variance = (Standard Variable Overhead Rate per Hour * Standard Hours for Actual Production) - (Standard Variable Overhead Rate per Hour * Actual Hours)

Standard Variable Overhead Rate per Hour = 8,000 / 1,600 Direct Labour Hours = $ 5 per Direct Labour Hour

Standard Hours for Actual Production = 7,400 Units * 0.40 Hour per Unit = 2,960 Hours

Actual Hours = 7,400 Units * 0.50 Hour per Units = 3,700 Hours

Variable Overhead Efficiency Variance = (5 * 2,960) - (5 * 3,700)

Variable Overhead Efficiency Variance = 14,800 - 18,500

Variable Overhead Efficiency Variance = ($ 3,700) Unfavorable Variance

Fixed Overhead Costs Variance = (Standard Fixed Overhead Rate per Hour * Standard Hours for Actual Production) - Actual Fixed Overhead

Standard Fixed Overhead Rate per Hour = 3,200 / 1,600 Direct Labour Hours = $ 2 per Direct Labour Hour

Standard Hours for Actual Production = 7,400 Units * 0.40 Hour per Unit = 2,960 Hours

Actual Fixed Overhead = $ 2,780

Fixed Overhead Costs Variance = (2,960 * 2) - 2,780

Fixed Overhead Costs Variance = 5,920 - 2,780

Fixed Overhead Costs Variance = $ 3,140 Favourable Variance

Fixed Overhead Volume Variance = (Standard Fixed Overhead Rate per Hour * Standard Hours for Actual Production) - (Standard Fixed Overhead Rate per Hour * Budgeted Hours)

Standard Fixed Overhead Rate per Hour = 3,2020 / 1,600 Direct Labour Hours = $ 2 per Direct Labour Hour

Standard Hours for Actual Production = 7,400 Units * 0.40 Hour per Unit = 2,960 Hours

Budgeted Hours = 1,600 Direct Labour Hours

Fixed Overhead Volume Variance = (2 * 2,960) - (2 * 1,600)

Fixed Overhead Volume Variance = 5,920 - 3,200

Fixed Overhead Volume Variance = $ 2,720 Favourable Variance

Question 2

1. Favourable and Less.

2. Unfavorable and More.

3. Favourable and Less.

4. Favourable and Less.