Overhead Variance Analysis The Lubbock plant of Morril’s Small Motor Division pr
ID: 2408510 • Letter: O
Question
Overhead Variance Analysis
The Lubbock plant of Morril’s Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows:
During the year, the Lubbock plant had the following actual production activity: (a) Production of motors totaled 50,000 units. (b) The company used 82,000 direct labor hours at a total cost of $1,066,000. (c) Actual fixed overhead totaled $556,000. (d) Actual variable overhead totaled $860,000.
The Lubbock plant’s practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.
1. Compute the variable overhead spending and efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable.
2a. CONCEPTUAL CONNECTION Compute the fixed overhead spending and volume variances. Enter amounts as positive numbers and select Favorable or Unfavorable.
Direct materials (6.0 lbs. @ $5.00) $30.00 Direct labor (1.6 hrs. @ $12.00) 19.20 VOH (1.6 hrs. @ $10.00) 16.00 FOH (1.6 hrs. @ $6.00) 9.60 Standard unit cost $74.80Explanation / Answer
1.
Absorbed variable overhead = Actual output x Standard overhead rate per unit
= 50,000 x 16
= $800,000
Standard output for actual hours = ( Budgeted output/ Budgeted hours ) x Actual hours
= ( 60,000/96,000 ) x 80,000
= 50,000
Standard variable overhead = Standard output for actual hours x Standard overhead rate per unit
= 50,000 x 16
= $ 800,000
Variable overhead spending variance = Standard variable overheads - Actual variable overheads
= 800,000 - 860,000
= $60,000 (Unfavorable)
Variable overhead efficiency variance = Absorbed variable overheads - Standard variable overheads
= 800,000 - 800,000
= 0
Variable overhead spending and efficiency variance
2.
Absorbed fixed overhead = Actual output x Standard overhead rate per unit
= 50,000 x 9.6
= $480,000
Budgeted fixed overhead = Budgeted output x Standard overhead rate per unit
= 60,000 x 9.6
= $ 576,000
Fixed overhead spending variance = Budgeted fixed overheads - Actual fixed overheads
= 576,000 - 556,000
= $20,000 (Favorable)
Fixed overhead volume variance = Absorbed fixed overheads - Budgeted fixed overheads
= 480,000 - 576,000
= $96,000 (Unfavorable)
Fixed overhead spending and volume variance
Spending variance $60,000 Favorable Efficiency variance $0Related Questions
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