The Supertramp Company uses standard costing. Overhead is charged to units using

Question

The Supertramp Company uses standard costing. Overhead is charged to units using direct labor hours. The standard for direct labor is 2.5 hours per unit at $20 per hour. At a level of 50,000 standard direct labor hours, a budget for the company shows $400,000 in variable overhead and $800,000 in fixed overhead. The 50,000 hours is the denominatoor level for the company. The company actually produced 24,000 units during the year, and actually used 47,000 direct labor hours to produce these units. The actual variable overhead incurred during the year was $371,000. The actual fixed overhead incurred during the year was $820,000.

Compute the fixed overhead budget and volume variances.

Explanation / Answer

The fixed overhead budget variance is the difference between the total fixed overhead budgeted for a given accounting period and the actual fixed overhead incurred during the period. The formula for the same is :

Actual Fixed Overhead – Budgeted Fixed Overhead

Actual Fixed overhead =$8,20,000

Budgeted Fixed Overhead= $8,00,000

Hence Fixed Overhead Budget Variance = $8,20,000- $8,00,000= $20000 (A)

Since the actual fixed overhead is more than budgeted so it is an adverse .

Hence, the answer is $20000 (A)

The Formula for Fixed Overhead Volume Variance =

Standard fixed overhead rate per unit * (Actual output – Budgeted Output)

Standard Fixed rate given per unit is $2.5 *20= $50

Actual output = 24000 units

Budgeted output =50000hrs/2.5= 20000units

So,Fixed overhead volume variance=50 * (24000-20000)

                                                                      =$200000 (Favourable)

Hence, the answer is $2,00,000 (F)

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.