Overhead Variances You may use the attached spreadsheet to help you complete thi

Question

Overhead Variances

You may use the attached spreadsheet to help you complete this activity, but you are not required to do so. You will find the spreadsheet by clicking on the link in the drop-down menu above.

At the beginning of the year, Gaillard Company had the following standard cost sheet for one of its chemical products:

                                   

Gaillard computes its overhead rates using practical volume, which is 144,000 units. The actual results for the year are as follows:

1. Compute the variable overhead spending and efficiency variances.

Spending variance

Efficiency variance

2. Compute the fixed overhead spending and volume variances.

Spending variances

Volume variances

Spending variance

Efficiency variance

Explanation / Answer

1)

Spending variance = (SR-AR)*AH
= SR*AH - Actual cost
= 0.90*286400 - 259300
= $1540 (U)

Efficiency variance = (SH-AH)*SR
=(286800-286400)*0.9
= $360 (F)

2)

Spending variances= Budgeted Fixed Overhead -Actual Fixed Overhead incurred

=1238400-1235900

=$2500 (F)

Volume variances = Fixed Overhed Cost Absorbed - Budgeted Fixed overhead

= 143400*8.60 - 1238400

=$5160 (U)

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