Question

Fabric Company manufactures pillows. The 2017 operating budget was based on production of 26,000 ​pillows, with 0.25 ​machine-hours allowed per pillow. Budgeted variable overhead per hour was $ 32. Actual production for 2017 was 27,200 pillows using 6,350 ​machine-hours. Actual variable costs were $ 29 per​ machine-hour. Calculate the​ following:

a. the budgeted variable overhead for 2017​;

b. the variable overhead spending​ variance; and

c. the variable overhead efficiency variance.

Answer 1

Given Information,

0.25 hours per unit.

Budgeted Variable overhead per hour $ 32

Actual Production 27200 Units

Actual Machine hours 6350

Actual Variable cosr per hour is $ 29

a.

Budgeted Variable overheads for 2017 = Budgeted Machine hours * Standarad variable overhead per machine hour

= 6,500 hours * $ 32

= $ 2,08,000

Budgeted Machine hours = Budgeted Production * Standard Machiner hour per Unit

= 26,000 units * 0.25 hour per unit

= 6,500 hours

b.

variable overhead spending​ variance = Actual variable overhead cost - ( Actual Machine hours * Standarad variable overhead per machine hour )

=$ 1,84,150 - ( 6,350 * $ 32 )

=$ 1,84,150 - $ 2,03,200

= $ 19,050 (F)

Actual variable overhead cost = Actual Machine hours * Actual Variable cost per machine hour

= 6,350 hours * $ 29 per machine hour

= $ 1,84,150

c.

variable overhead efficiency variance = Standarad variable overhead per machine hour * ( Actual hours - Standard hours for actual production)

= $ 32 * ( 6,350 - 6,800 )

= $ 14,400 (F)

Standard Machine hours required for Actual Production = Actual Production * Standard Machiner hour per Unit

= 27,200 Units * 0.25 hours per unit

= 6,800 Machine hours

Note: (F) Stands for Favourable.