Question

Use the following information of Alfred Industries.

Standard manufacturing overhead based on normal monthly volume:
Fixed ($303,900 ÷ 20,000 units)	$	15.20
Variable ($100,000 ÷ 20,000 units)		5.00		$	20.20
Units actually produced in current month					18,000	units
Actual overhead costs incurred (including $300,000 fixed)				$	383,800

Compute the overhead spending variance and the volume variance. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

Overhead spending variance = (Favorable or Unfavorable)

Overhead volume variance = (Favorable or Unfavorable)

Answer 1

Solution:

Overhead spending variance = Budgeted overhead for actual production - Actual overhead

= (18000*$5 + $303,900) - $383,800 = $10,100 F

Overhead volume variance = Fixed overhead applied - Budgeted fixed overhead

= (18000*$15.20) - $303,900 = $30,300 U