Overhead Variances At the beginning of the year, Lopez Company had the following
ID: 2461654 • Letter: O
Question
Overhead Variances
At the beginning of the year, Lopez Company had the following standard cost sheet for one of its chemical products:
Lopez computes its overhead rates using practical volume, which is 80,000 units. The actual results for the year are as follows:
Units produced: 86,100
Direct labor: 158,900 hours at $18.30
FOH: $871,000
VOH: $129,900
Required:
1. Compute the variable overhead spending and efficiency variances.
2. Compute the fixed overhead spending and volume variances.
Direct materials (4 lbs. @ $2.80) $11.20 Direct labor (2 hrs. @ $18.00) 36.00 FOH (2 hrs. @ $5.20) 10.40 VOH (2 hrs. @ $0.70) 1.40 Standard cost per unit $59.00Explanation / Answer
Answer 1 Variable overhead spending variance = Actual hours worked * (Actual overhead rate - standard overhead rate) Actual hours worked = 158900 hours Actual variable overhead rate per hour = $129900 / 158900 hours = $0.82 per hour Standard variable overhead rate per hour = $0.70 per hour Variable overhead spending variance = 158900 * (0.82 - 0.70) = $19068 Unfavourable Variable overhead efficiency variance = standard overhead rate * (Actual hours - standard hours) Standard variable overhead rate per hour = $0.70 per hour Actual hours worked = 158900 hours Standard hours = 86100 units * 2 hour = 172200 hours Variable overhead efficiency variance = 0.70 * (158900 - 172200) = -$9310 Favourable Answer 2 Fixed overhead spending variance = Actual fixed overhead - Budgeted fixed overhead Actual fixed overhead = $871000 Budgeted fixed overhead = 80000 units * $10.40 = $832000 Fixed overhead spending variance = $871000 - $832000 = $39000 unfavourable Fixed overhead Volume variance = (Actual quantity * Standard fixed overhead absorption rate) - (Budgeted quantity *Standard fixed overhead absorption rate) Actual quantity = 86100 Standard fixed overhead absorption rate = $10.40 per unit Budgeted quantity = 80000 units Fixed overhead Volume variance = (86100 * 10.40) - (80000 *10.40) = $63440 Favourable
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