The following information is for the standard and actual costs for the Carson Pa
ID: 2463629 • Letter: T
Question
The following information is for the standard and actual costs for the Carson Palmer Corporation.
Standard Costs:
Budgeted units of production - 16,000 (80% of capacity)
Standard labor hours per unit – 4 Standard labor rate $26 per hour
Standard material per unit - 8 lbs.
Standard material cost - $ 12 per lb.
Budgeted fixed overhead $640,000
Standard variable overhead rate - $15 per labor hour.
Fixed overhead rate is based on budgeted labor hours at 80% capacity.
Actual Cost:
Actual production - 16,500 units
Actual fixed overhead - $640,000
Actual variable overhead - $1,000,000
Actual labor - 65,000 hours, total labor costs $1,700,000
Actual material purchased and used - 130,000 lbs, total material cost $1,600,000
Actual variable overhead - $1,000,000
1) the spending and efficiency variances for the Variable Factory Overhead), and
2) the spending and volume variances for Fixed Factory Overhead. And
3) The total Factory Overhead Controllable Variance.
Explanation / Answer
1.
Variable factory overhead spending varince
= Actual variable overhead - (Standard variable overhead rate x Actual hours worked)
= $1,000,000 - ($15 x 65,000 hours)
= $1,000,000 - $975,000
= $25,000 Unfavorable
The variance is unfavorable because actual variable overhead costs incurred are more than what should have been incurred as per the standards.
Variable factory overhead efficiency variance
= .(Actual hours - Standard hours for actual production) x Stanard vriable overhead rate
= (65,000 - 66,000) x $15
= $15,000 Favorable
The variance is favorable because actual hours worked are less than the number of hours that should have been worked as per the standards.
2.
Fixed factory overhead spending variance
= Actual fixed overhead - Budgeted fixed overhead
= $640,000 - $640,000
= $0
There is no fixed factory overhead spending variance as the budgeted fixed overhead is exactly equal to the actual fixed overhead.
Fixed factory overhead volume variance
= (Actual hours used in production x Standard fixed overhead rate) - Budgeted fixed overhead
= (65,000 x $10) - $640,000
= $10,000 Unfavorable
The variance is unfavorable because the absorbed fixed factory overhead s more than the budgeted fixed overhead.
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