V. Computation of materials, labor, and overhead variances Tuna Company set the

Question

V. Computation of materials, labor, and overhead variances Tuna Company set the following standard unit costs for its single product. Direct materials (25lbs. @ $4 per lb.) 100.00 Direct labor (6 hrs. @ $8 per hr.) 48.00 Factory overhead - variable (6 hrs. @ $5 per hr.) 30.00 Factory overhead - fixed (6 hrs. @ $7 per hr.) 42.00 Total Standard Cost 220.00 The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available. Operating Levels 70% 80% 90% Production in units 42,000 48,000 54,000 Standard direct labor hours 252,000 288,000 324,000 Budgeted Overhead Fixed factory overhead 2,016,000 2,016,000 2,016,000 Variable factory overhead 1,260,000 1,440,000 1,620,000 During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; actual direct labor totaled 250,000 hours. Units produced were assigned the following standard costs: Direct materials (1,050,000 lbs. @ $4 per lb.) 4,200,000 Direct labor (252,000 hrs. @ $8 per hr.) 2,016,000 Factory overhead (252,000 @ $12 per hr.) 3,024,000 Total Standard Cost 9,240,000 Actual costs incurred during the current quarter follow: Direct materials (1,000,000 lbs @ $4.25) 4,250,000 Direct labor (250,000 hrs. @ 7.75) 1,937,500 Fixed factory overhead cost 1,960,000 Variable factory overhead cost 1,200,000 Total Actual Cost 9,347,500 4. Compute the variable overhead spending and efficiency variance 5. Compute the fixed overhead spending and volume variance.

Explanation / Answer

Answer 4. Variable Overhead Spending Variance = (SR - AR) X Actual Hrs Worked Variable Overhead Spending Variance = ($5 - $4.80) X 250,000 Hrs Variable Overhead Spending Variance = $50,000 (F) Variable Overhead Efficiency Variance = (SH - AH) X SR Variable Overhead Efficiency Variance = (252,000 - 250,000) X $5 Variable Overhead Efficiency Variance = $10,000 (F) Answer 5. Fixed Overhead Spending Variance = Budgeted Fixed Overheads - Actual Fixed Overheads Fixed Overhead Spending Variance = (252000 X $7) - 1,960,000 Fixed Overhead Spending Variance = $196,000 (U) Fixed Overhead Volume Variance = Budgeted Fixed Overheads - Absorbed Fixed Overhead Fixed Overhead Volume Variance = (252,000 X $7) - 2,016,000 Fixed Overhead Volume Variance = $252,000 (U)

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