Question

Factory Overhead Cost Variances

Perma Weave Textiles Corporation began January with a budget for 22,000 hours of production in the Weaving Department. The department has a full capacity of 29,000 hours under normal business conditions. The budgeted overhead at the planned volumes at the beginning of January was as follows:

Variable overhead	$59,400
Fixed overhead	40,600
Total	$100,000

The actual factory overhead was $101,200 for January. The actual fixed factory overhead was as budgeted. During January, the Weaving Department had standard hours at actual production volume of 23,000 hours. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your interim computations to the nearest cent, if required.

a. Determine the variable factory overhead controllable variance.
$   

b. Determine the fixed factory overhead volume variance.
$  

Answer 1

A. Variable factory overhead controllable variance.= actual variable factory over head -Budgeted variable factory overhead.

=$60600-$62100= $1500 F

Working Note

*Actual variable factory over head = total overhead - fixed over head

$101200 -$40600= $60600

Budgeted variable factory over head = Standard hours for actual output * variable overhead rate

= 23000 Hour X $2.70 = 62100

standard hours for actual output =23,000 hours.

variable overhead rate = budgeted overhead / budgeted hours

59400 /22,000 =$2,70

(b).

Fixed factory over head volume variance = (standard hours for 100% of normal capacity - standard hours for actual units produced )* Fixed factory overhead rate.

Fixed factory overhead volume variance = (29000 - 23,000)*$1.4= $8400 Unnfavourable

Working Note

standard hours for 100% of normal capacity = 29,000 hours.

standard hours for actual units produced = 23,000 hours.

Fixed factory overhead rate. = budeget fixed over head / capacity hours

= $40600 / 29,000= $1.4 per Hour