Question

can you please help with question E11.22

E11.22 LO11.5 Straightforward calculation of overhead variances: manufacturer The data below relate to Sporty Ltd, a manufacturer of exercise equipment, for August Standard variable overhead rate Standard quantity of machine hours Budgeted fixed overhead Budgeted output S27 per machine hour 2 hours per unit of output $270 000 15 000 units Actual results for August are as follows: Actual output Actual variable overhead Actual fixed overhead Actual machine time 13 500 units $757 350 $274 500 29 700 machine Hours Required: Calculate the following variances, indicating whether each variance is favourable or unfavourite 1. variable overhead spending variance 2. variable overhead efficiency variance 3. fixed overhead budget variance 4. fixed overhead volume variance.

Answer 1

1 2 3 Variable overhead spending variance Variable overhead efficiency variance Fixed Overhead Budget Variance Fixed Overhead Volume Variance | $ $ $ $ 44,550 F 72,900 4,500 LU 27,000 F F means Favourable Variance and U means Unfavourable Variance Variable overhead spending variance Variable overhead spending variance III (SR-AR)* AH ($ 27 - $25.50 ) *29700 $ 44,550 Where = SR is the standard variable overhead rate AR is the actual variable overhead rate $ 27.00 Actual variabe over head / Actual Machine Hours $ 757350/ 29700 $ 25.50 29700 AR is the actual variable overhead rate AH are the actual machine hours Variable overhead efficiency variance Variable overhead efficiency variance (SH - AH) * SR (27000-29700)*$ 27 $ 72,900 U

Where = SR is the standard variable overhead rate SH are the Standard Machine hours AH are the actual machine hours $ 27.00 13500*2 = 29700 27000 Fixed Overhead Budget Variance Fixed Overhead Budget Variance Budgeted Fixed Over head - Actual Fixed Overhead $ 270000 - $ 274500 $ 4,500 U Fixed Overhead Volume Variance Fixed Overhead Volume Variance Standard Fixed Overhead - Budgeted Fixed Overhead $ 243000 - $ 270000 $ 27,000 U Working Notes: Standard Fixed Over head Standard hours for actual production * Standard Fixed Over head rate per hour 13500*2*$ 9 $243,000 Standard Fixed Over head rate per hour Budgeted Fixed Overhead / Budgeted Machine Hours $ 270000 / 30000 $ 9 Budgeted Machine Hours = Budgeted output * Standard hours per unit = 15000 * 2= 30000