3. Sharp Company manufacturers jeans. In June, Sharp made 1200 pairs o f jeans,

Question

3. Sharp Company manufacturers jeans. In June, Sharp made 1200 pairs o f jeans, but had budgeted he production at 1400 pairs of jeans. The allocation base for overhead costs is direct labor following additional data is available for the month: Variable overhead cost standard Direct labor efficiency standard Actual amount of direct labor hours Actual cost of variable overhead $0.60 per DLH 2.00 DLHr per jean 2,520 DLH $1,51 ixed overhead cost standard Budgeted fixed overhead Actual cost of fixed overhead 50.25 per DLH $700 Calculate the following variances: a. Variable overhead cost variance b. c. d. e. f. Total fixed overhead variance Variable overhead efficiency variance Total variable overhead variance Fixed overhead cost variance Fixed overhead volume variance

Explanation / Answer

Solution a:

Variable overhead cost variance = (SR - AR) * AH

standard rate of variable overhead = $0.60 per DLH

Actual rate of variable overhead = $1,512/2520 = $0.60 per DLH

Actual direct labor hours = 2520

Variable overhead cost variance = ($0.60 - $0.60)* 2520 = $0

Solution b:

Standard hours for actual production = 1200 * 2 = 2400 hours

Variable overhead efficiency variance = (SH - AH) * SR = (2400 - 2520) * $0.60 = $72 U

Solution c:

Total variable overhead variance = Variable overhead cost variance + Variable overhead efficiency variance

= $0 + $72 U = $72 U

Solution d:

Budgeted fixed overhead = $700

Actual fixed overhead = $750

Fixed overhead cost variance = Budgeted fixed overhead - Actual fixed overhead = $700 - $750 = $50 U

Solution e:

Fixed overhead applied = SH * SR = 2400 * $0.25 = $600

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead variance

= $600 - $700 =$100 U

Solution f:

Total fixed overhead variance = fixed overhead cost variance + Fixed overhead volume variance

= $50 U + $100 U = $150 U

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