The following information relates to manufacturing overhead for the Chapman Comp
ID: 2350976 • Letter: T
Question
The following information relates to manufacturing overhead for the Chapman Company: Standards: Total fixed factory overhead - $450,000 Estimated production - 25,000 units (100% of capacity) Overhead rates are based on machine hours. Standard hours allowed per unit produced - 2 Fixed overhead rate - $9.00 per machine hour Variable overhead rate - $3.50 per hour Actual: Fixed factory overhead - $450,000 Production - 24,000 units Variable overhead - $170,000 Required: (a) Compute the volume variance. (b) Compute the controllable variance. (c) Compute the total factory overhead cost variance.Explanation / Answer
Actual Variable overhead rate per hr = $170,000/(24000*2) = $3.54 per hr Actual FOH rate per hr = $450,000/(24000*2) = $9.38 per hr Factory overhead volume variance represents the difference between the budget allowance and the standard expenses charged to work in process (standard hours allowed × standard overhead rate) Factory overhead volume variance (FOHVV) = Budgeted allowance based on standard hours allowed* – Overhead charged to production** *Budgeted fixed expenses + variable expenses (standard hours allowed for actual production × variable overhead rate) **Standard hours allowed × Standard overhead rate SO FOHVV =(24000*2*$9.38+ 2*24000* $3.54) - ($450000+2*24000*$3.50) ie VV = $2,160 = $2160 U....... >ans(a) The controllable variance is the difference between actual expenses incurred and the budget allowance based on standard hours allowed for work performed. This variance may be favorable or unfavorable. Controllable variance (CV) = Actual Factory Overhead (AFOH) - Budgeted Allowance Based on Standard Hours Allowed (BFOH) ie CV = ($450000+$170,000) - ($450,000+ 25000*2*$3.50) = $(5,000) = $5000 F ..Ans(b) Total factory overhead cost variance (TOHCV) is nothing but Over/Under absorbed OHs ie TOHCV = Total OH Cost absorbed - Total OH Cost incurred ie TOHCV = Actula o/p *Budgeted rate pu -Actual o/p*Actual rate pu ie TOHPU = (24000*2*9.00 + 24000*2*$3.50) - (24000*2*$9.38+24000*2*$3.54) = $(20,160) ie TOHPU = $20,160 U ....ans(c)
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