Thrice Corporation has a combined overhead application rate of $9 per standard p

Question

Thrice Corporation has a combined overhead application rate of $9 per standard production hour allowed. The overhead application rate anticipates $3 of variable overhead cost per hour and 6,000 units of production with 1.2 allowed hours per unit. During the month of May, the company produced 6,500 units in 8,000 hours and reported $4,800 in underapplied overhead. A three way analysis of manufacturing overhead would produce the following results Spending Efficiency Volume a. $4,800 $600 $3,000 b. $9,600 $600 $5,400 c. $7,800 $600 $3,600 d. $8,400 $600 $3,000

Explanation / Answer

Solution:

Standard hours for actual production = 6500*1.2 = 7800 hours

Budgeted overhead for actual production = Variable overhead + Fixed overhead

= (7800*$3) + (6000*1.2*$6) = $66,600

Overhead applied = 6500*1.2*$9 = $70,200

Actual overhead incurred = Overhead applied + Underapplied overhead = $70,200 + $4,800 = $75,000

Total budget variance = Budgeted overhead - Actual overhead = $66,600 - $75,000 = $8,400 U

Efficiency variance = (SH - AH) * SR for variable overhead = (7800 - 8000)* $3 = $600 U

spending variance = Budget variance - efficiency variance = $8,400 - $600 = $7,800 U

Volume variance = Fixed Overhead applied - Budgeted fixed overhead = $70,200 - $66,600 = $3,600 F

Hence option c is correct.

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