Acme Company’s production budget for August is 17,500 units and includes the fol

Question

Acme Company’s production budget for August is 17,500 units and includes the following component unit costs: direct materials, $8; direct labor, $10; variable overhead, $6. Budgeted fixed overhead is $32,000. Actual production in August was 18,000 units, actual unit component costs incurred during August include direct materials, $8.25; direct labor, $9.45; variable overhead, $6.82. Actual fixed overhead was $33,500, the standard variable overhead rate per unit consists of $6 per machine hour and each unit is allowed a standard of 1 hour of machine time. During August, $122,760 of actual variable overhead cost was incurred for 19,800 machine hours.

Calculate the variable overhead spending variance and the variable overhead efficiency variance

Acme Company’s production budget for August is 17,500 units and includes the following component unit costs: direct materials, $8; direct labor, $10; variable overhead, $6. Budgeted fixed overhead is $32,000. Actual production in August was 18,000 units, actual unit component costs incurred during August include direct materials, $8.25; direct labor, $9.45; variable overhead, $6.82. Actual fixed overhead was $33,500, the standard variable overhead rate per unit consists of $6 per machine hour and each unit is allowed a standard of 1 hour of machine time. During August, $122,760 of actual variable overhead cost was incurred for 19,800 machine hours.

Calculate the variable overhead spending variance and the variable overhead efficiency variance

Explanation / Answer

Solution:

(A). Variable Overhead Spending Varience:

V.O.H.V = 19,800 ( 17.7 - 6)

= 19,800 (11.7)

= 2,31,660

(b). Overhead Efficiency Varience:

O.E.V = 6 ( 19,800 - 17,500)

= 6 ( 2,300)

   = 13,800

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