Question

Ana Carillo and Associates is a medium-sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size.

One such non-custom model is called Luxury Base Frame. Normal production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 950 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows.

		Standard (1,000 units)			Actual (950 units)
Indirect materials		$  12,800			$  13,100
Indirect labor		45,700			54,300
(Fixed) Manufacturing supervisors salaries		23,900			23,400
(Fixed) Manufacturing office employees salaries		13,800			13,300
(Fixed) Engineering costs		28,700			26,600
Computer costs		10,600			10,600
Electricity		2,700			2,700
(Fixed) Manufacturing building depreciation		8,500			8,500
(Fixed) Machinery depreciation		3,200			3,200
(Fixed) Trucks and forklift depreciation		1,600			1,600
Small tools		700			1,500
(Fixed) Insurance		500			500
(Fixed) Property taxes		300			300
Total		$153,000			$159,600

Calculate the total overhead variance, controllable variance, and volume variance. (Round variable overhead to 2 decimal places and final answers to 0 decimal places, e.g. 1,575.)

Total overhead variance		$	UnfavorableNeither favorable nor unfavorableFavorable
Controllable variance		$	UnfavorableNeither favorable nor unfavorableFavorable
Volume variance		$	FavorableUnfavorableNeither favorable nor unfavorable

Answer 1

* overhead opplication rate = Total Standard overhead / Total Standard hours 153000 / (looox 5) 30.6

* Appleed overhead - standard hours for actual production X capplecation rate = Overhead 4500 x 30.6 137700

Total overhead varlance = = = Appleed overhead - Actual overhead 137700 - 159600 21900 W

Total budgeted variable overhead = 19800 +45700 + 10600 +2700 + 700 = 72500 Variable overhead rate per hour = 12500 / 5000 = 14.5 (1000X 5) Budgeted fixed overhead = 153000 - 72500 = 80500 Budgeted overhead for actual production a variable overhead & fixed overhead = (4500 x 145) + 80500 = 145950 Actual overhead Incurred = 159600 Controllable varlance = Budgeted weathead - Actual overhead = 145750 - 159600 13850 U Volume variance = overhead appleed - Budgeted overhead - - 137700 - 1455750 8050 u