Buis Corporation, which makes landing gears, has provided the following data for
ID: 2453837 • Letter: B
Question
Buis Corporation, which makes landing gears, has provided the following data for a recent month:
Determine the rate and efficiency variances for the variable overhead item supplies and indicate whether those variables are favorable or unfavorable. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
Buis Corporation, which makes landing gears, has provided the following data for a recent month:
Budgeted production 2,300 gears Standard machine-hours per gear 6.0 machine-hours Budgeted supplies cost $6.60 per machine-hour Actual production 1,200 gears Actual machine-hours 7,800 machine-hours Actual supplies cost (total) $49,852 Required:Determine the rate and efficiency variances for the variable overhead item supplies and indicate whether those variables are favorable or unfavorable. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
Variable overhead rate variance $ Variable overhead efficiency variance $Explanation / Answer
Budgeted production
2,300
gears
Standard machine-hours per gear
6.0
machine-hours
Budgeted supplies cost
$6.60
per machine-hour
Actual production
1,200
gears
Actual machine-hours
7,800
machine-hours
Actual supplies cost (total)
$49,852
Variable Overhead Efficiency Variance
The variable overhead efficiency variance is the difference between the actual and budgeted hours worked, which are then applied to the standard variable overhead rate per hour. The formula is:
Standard overhead rate x (Actual hours - standard hours)
= Variable overhead efficiency variance
=6(7800-6*1200)
=6(7800-7200)
=6(600)
=3600(U)
A favorable variance means that the actual hours worked were less than the budgeted hours, resulting in the application of the standard overhead rate across fewer hours, resulting in less expense incurred. However, a favorable variance does not necessarily mean that a company has incurred less actual overhead, it simply means that there was an improvement in the allocation base that was used to apply overhead.
Variable Overhead Rate Variance
Variable Overhead rate variance is essentially the difference between the Actual Supplies cost – (Actual Hours* Standard Machine Hour Per gear
=49852-(7800*6)
49852-46800
3052(U)
Budgeted production
2,300
gears
Standard machine-hours per gear
6.0
machine-hours
Budgeted supplies cost
$6.60
per machine-hour
Actual production
1,200
gears
Actual machine-hours
7,800
machine-hours
Actual supplies cost (total)
$49,852
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