Question

ABC Company has the following standards and flexible budget data:

Standard Variable Overhead Rate $5.40 Per direct labour hour

Standard quantity of direct labor $1.80 hours per unit of output

Budgeted fixed overhead rate $100,000

Budgeted Output 25,000 units

Standard Variable Overhead $10.80 per unit

Standard Fixed Overhead $3.60 per unit

Actual Results for November are given below:

Actual Output 30,000 units

Actual variable overhead $360,000

Actual Fixed Overhead $106,000

Actual Direct Labor 56,000 hours

REQUIRED:

A) Variable manufacturing overhead spending variance

A2) Favorable or Unfavorable?

B) Variable Manufacturing Overhead Efficiency Variance

B2) Favorable or Unfavorable

C) Fixed manufacturing overhead spending variance

C2) Favorable of Unfavorable

D) Fixed Manufacturing overhead volume variance

D2) Favorable or Unfavorable

Answer 1

Solution)

Given:-  

Standard Data

Standard Variable Overhead Rate = $5.40 per direct labour hour

The standard quantity of direct labor = 1.80 hours per unit of output

Budgeted fixed overhead rate = $100,000

Budgeted Output = 25,000 units

Standard Variable Overhead = $10.80 per unit

Standard Fixed Overhead = $3.60 per unit

Actual Data

Actual Output = 30,000 units

Actual variable overhead = $360,000

Actual Fixed Overhead = $106,000

Actual Direct Labor = 56,000 hours

(A) Variable manufacturing overhead spending variance

= (Standard manufacturing overhead rate - Actual manufacturing overhead rate) X Actual hours worked

= [ Standard manufacturing overhead rate - (Actual variable manufacturing overhead / Actual Direct Labor hours)] X Actual Direct Labor hours

= [ $5.40 - ($360,000/56,000 hours)] X 56,000 = ($57,600) = $57,600 Unfavourable.

So, Variable manufacturing overhead spending variance is unfavorable.

(B) Variable Manufacturing Overhead Efficiency Variance

= (Standard Hours for actual output - Actual Hours for actual output) X Standard Variable Manufacturing Overhead Rate

= [(Standard hours per output X Actual Output) - Actual hours for Actual Output] X $5.40

= [(1.80 X 30,000) - 56,000] X $5.40

= $(54,000 - 56,000) X $5.40

= ($10,800)

= $10,800 Unfavorable.

So, Variable Manufacturing Overhead Efficiency Variance is unfavorable.

(C) Fixed manufacturing overhead spending variance

= Standard Fixed manufacturing overhead for actual output - Actual Fixed manufacturing overhead for actual output

= ($3.60 per unit X 30,000 units) - $106,000

= $108,000 - $106,000

= $2,000

= $2,000 Favorable

So, Fixed manufacturing overhead spending variance is favorable.

(D) Fixed Manufacturing overhead volume variance

= (Standard Units - Actual Units) X Standard Fixed Manufacturing overhead rate per unit

= (25,000 - 30,000) X $3.60 per unit

= ($18,000)

= $18,000 Favorable

So, Fixed Manufacturing overhead volume variance is favorable.