Trico Company set the following standard unit costs for its single product. Dire

Question

Trico Company set the following standard unit costs for its single product. Direct materials (28 lbs. $4.00 per lb.) Direct labor (7 hrs. @ $8.20 per hr.) Factory overhead-variable (7 hrs. @ $4.90 per hr.) Factory overhead-fixed (7 hrs. $8.00 per hr.) 112.00 57.40 34.30 56.00 Total standard cost $ 259.70 The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 59,000 units per quarter. The following flexible budget information is available Operating Levels 80% 47,200 330,400 90% Production in units Standard direct labor hours Budgeted overhead 70% 41,300 289,100 53,100 371,700 Fixed factory overhead Variable factory overhead $ 2,643,200 $2,643,200 $2,643,200 $1,416,590 $1,618,960 $ 1,821,330 During the current quarter, the company operated at 70% of capacity and produced 41,300 units of product; actual direct labor totaled 287,300 hours. Units produced were assigned the following standard costs Direct materials (1,156,400 lbs. $4.00 per lb.) Direct labor (289,100 hrs. @ $8.20 per hr.) Factory overhead (289,100 hrs. $12.90 per hr.) $4,625,600 2,370,620 3,729,390 Total standard cost 10,725,610 Actual costs incurred during the current quarter follow: Direct materials (1,097,400 lbs. $4.29 per lb.) Direct labor (287,300 hrs. @ $7.90 per hr.) Fixed factory overhead costs Variable factory overhead co 4,707,846 2,269,670 2,579,200 1,364,675 sts Total actual costs $ 10,921,391

Explanation / Answer

the assumptions taken are given below

The company operated at 70% capacity

The formula to calculate total variable overhead spending (flexible budget amount - actual overhead cost)

The formula to calculate volume efficiency of overhead is

The formula to calculate total fixed overhead spending (flexible budget amount - actual overhead cost)

The formula to calculate volume efficiency of fixed overhead efficiency variance =Standard overhead rate x (Actual hours - standard hours

The variable overhead efficiency variance is the difference between the actual and budgeted hours worked, which are then applied to the standard variable overhead rate per hour. The formula is:

Standard overhead rate x (Actual hours - standard hours)
= Variable overhead efficiency variance

calculation of variable overhead spending and efficiency variances Actual overhead cost Flexible Budget Standard Cost (VOH) units hour rate per hour amount units hour rate per hour amount units hour rate per hour amount 41300 287300 4.75 1364675 41300 289100 4.9 1416590 41300 289100 4.9 1416590 ` per unit number of hours used 6.96 per unit number of hours used 7 per unit number of hours used 7 total variable overhead spending (flexible budget amount - actual overhead cost) 51915 VOH overhead efficiency variance =Standard overhead rate x (Actual hours - standard hours)       (8,820.00)

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