Question

Required information The following information applies to the questions displayed below] Patel and Sons Inc. uses a standard cost system to apply factory overhead costs to units produced. Practical capacity for the plant is defined as 53,100 machine hours per year, which represents 26,550 units of output. Annual budgeted fixed factory overhead costs are $265,500 and the budgeted variable factory overhead cost rate is $3.00 per unit. Factory overhead costs are applied on the basis of standard machine hours allowed for units produced. Budgeted and actual output for the year was 20,500 units, which took 42,100 machine hours. Actual fixed factory overhead costs for the year amounted to $257,100 while the actual variable overhead cost per unit was $2.90 Based on the information provided above, calculate the following factory overhead variances for the year. Indicate whether each variance is favorable (F) or unfavorable (U). (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.) (a) Total overhead variance (b) Total flexible-budget variance (c) Production volume variance

Answer 1

a) Calculation of Total Overhead Variance (Amounts in $)

Budgeted machine hrs required per unit = 53,100 hrs/26,550 units = 2 hrs per unit

Budgeted Fixed overhead cost per hour = Budgeted Fixed Overheads/Budgeted Machine hrs

= $265,500/53,100 hrs = $5 per hour

Budgeted Variable overhead cost per hour = (Budgeted units*Budgeted rate per unit)/Budgeted Machine hrs

= (26,550 units*$3 per unit)/53,100 hrs = $1.50 per hour

Total budgeted overhead cost per hour = $5+$1.50 = $6.50 per hour

Total Overhead Variance = Overhead applied to actual production - Actual Overhead

= (20,500 units*2 per hour*$6.50 per hr) - [(20,500 units*$2.90)+$257,100]

= $266,500 - $316,550 = $50,050 Unfavorable

b) Calculation of Total Flexible Budget Variance

Fixed Overhead Flexible budget variance = Flexible budget based on actual output - Actual Overhead

= $265,500 - $257,100 = $8,400 Favorable

Variable Overhead Flexible budget variance = Flexible budget based on actual output - Actual Overhead

= (20,500*2 hrs*$1.5) - (20,500 units*$2.90)

= $61,500 - $59,450 = $2,050 Favorable

Total Flexible budget variance = $8,400 F+$2,050 F = $10,450 F

c) Calculation of Production Volume Variance

Fixed Overhead Production Volume Variance = Applied Fixed Overhead - Budgeted Fixed Overhead

= (20,500*2 hrs*$5) - 265,500

= $205,000 - $265,500 = $60,500 Unfavorable

a)	Total overhead variance	$50,050 U
b)	Total flexible budget variance	$10,450 F
c)	Production volume variance	$60,500 U