Sedona Company set the following standard costs for one unit of its product for

Question

Sedona Company set the following standard costs for one unit of its product for 2013.    
   

  
   

The $6.80 ($4.60 + $2.20) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 56,000 units per month. The following monthly flexible budget information is also available.

  
   

  
   

During the current month, the company operated at 70% of capacity, employees worked 371,000 hours, and the following actual overhead costs were incurred.

  
   

Compute the variable overhead spending and efficiency variances. (Round "AVR" and "SVR" to 2 decimal places.)

  

   Direct material (15 Ibs. @ $3.20 per Ib.) $ 48.00    Direct labor (10 hrs. @ $9.50 per hr.) 95.00    Factory variable overhead (10 hrs. @ $4.60 per hr.) 46.00    Factory fixed overhead (10 hrs. @ $2.20 per hr.) 22.00    Standard cost $ 211.00

Explanation / Answer

Actual hours worked x (Actual overhead rate - standard overhead rate)
= Variable overhead spending variance

At 70% capacity, standard overhead rate =1,803,200/392000 = $4.6per hour

Actual overhead rate = 1,716,000/371000 = $4.63 per hour

Variable overhead spending variance = 371000*(4.63 - 4.6) =$9400.00 Unfavorable

Standard overhead rate x (Actual hours - standard hours)
= Variable overhead efficiency variance

Variable overhead efficiency variance =4.6*(371000-392000) =-$96600.00 Favorable

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