Alden Company uses a two-variance analysis for overhead variances. Practical cap

Question

Alden Company uses a two-variance analysis for overhead variances. Practical capacity is defined as 34 setups and 34,000 machine hours to manufacture 8,500 units for the year. Selected data for 2016 follow:

  Budgeted fixed factory overhead:      Setup   $ 57,800         Other 144,000 $ 201,800   Total factory overhead incurred $ 493,000   Variable factory overhead rate:      Per setup $ 700      Per machine hour $ 8   Total standard machine hours allowed for the units manufactured 26,000 hours   Machine hours actually worked 28,500 hours   Actual total number of setups 30 Required: 1. Compute (a) the total overhead spending variance, (b) the overhead efficiency variance, and (c) the total overhead flexible-budget variance fo r 2016. Spending variance Efficiency variance Flexible-budget variance 2. Assume that the company includes all setup costs as variable factory overhead. The budgeted total fixed overhead, therefore, is S165,000, and the standard variable overhead rate per setup is $2,400. What are the (a) overhead spending, (b) efficiency, and (c) flexible-budget variances for the year? Spending variance Efficiency variance Flexible-budget variance 3. Assume that the company uses only machine hours as the activity measure to apply both variable and fixed overhead, and that it includes all setup costs as variable factory overhead. What is the (a) overhead spending variance, (b) efficiency variance, and (c) flexible-budget variance for the year? Spending variance Efficiency variance Flexible-budget variance

Explanation / Answer

1.Spending Variance Actual Factory OH Incurred 493000 Estimated Factory OH @ Std.hrs. Fixed cost 201800 Variable cost 8*26000 208000 409800 83200 UF Volume Variance Estimated Factory OH @ Std.hrs. Fixed cost 201800 Variable cost 8*26000 208000 409800 Factory OH applied (493000/28500*26000) 449754.4 39954.39 (F) Flexible Budget Variance= 83200(UF)+39954 (F)= 43246(UF) 2..Spending Variance Actual Factory OH Incurred 493000 Estimated Factory OH @ Std.hrs. Fixed cost 165000 Variable cost 2400*30 72000 237000 256000 UF Volume Variance Estimated Factory OH @ Std.hrs. Fixed cost 165000 Variable cost 2400*30 72000 237000 Factory OH applied (493000/30*34) 558733.3 321733.3 (F) Flexible Budget Variance= 256000(UF)+321733 (F)=   65733 F 3...Spending Variance Actual Factory OH Incurred 493000 Estimated Factory OH @ Std.hrs. Fixed cost 144000 Variable cost 8*26000 208000 352000 141000 UF Volume Variance Estimated Factory OH @ Std.hrs. Fixed cost 144000 Variable cost 8*26000 208000 352000 Factory OH applied (493000/28500*26000) 449754.4 97754.39 (F) Flexible Budget Variance= 141000(UF)+97754 (F)=   43245.61 UF

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