Montoursville Control Company, which manufactures electrical switches, uses a st

Question

Montoursville Control Company, which manufactures electrical switches, uses a standard-costing system. The standard production overhead costs per switch are based on direct-labor hours and are as follows Variable overhead (4 direct-labor hours@$14.00 per hour) Fixed overhead (4 direct-labor hours@ $26.00 per hour) $ 56 104 Total overhead $160 Based on capacity of 310,000 direct-labor hours per month The following information is available for the month of October . Variable overhead costs were $5,940,000 Fixed overhead costs were $8,625,000o 74,500 switches were produced, although 77,500 switches were scheduled to be produced 295,000 direct-labor hours were worked at a total cost of $5,825,000. Required Compute the variable-overhead spending and efficiency variances and the fixed-overhead budget and volume variances for October. (Indicate the effect of each variance by selecting "Favorable" or "unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).) Variable-overhead spending variance Variable-overhead efficiency variance Fixed-overhead budget variance Fixed-overhead volume variance

Explanation / Answer

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Std Variable OH rate per hour: $ 14 per hour Std labour hour per unit: 4 hours Actuall output: 74500 units Std labour hours allowed: (74500*4)= 298000 hours Actual hours worked: 295000 hours Actual Variable OH rate per hour (5940,000/295000): $ 20.14 per hour Variable OH spending variance= Actual horus wokred (Std OH rate -Actual OH rate per hour) 295,000 hours (14 - 20.14)= $1810,000 U Variable OH efficiency variance= Std rate per hour (Std hours-Actual hours) 14 ( 298000-295000) = $ 42,000 F Fixed OH rate per hour: $ 26 Actual fixed OH: $ 8625,000 Std Fixed OH allowed for actual output: (298000 hours*26): $7748,000 Budgeted Fixed OH (77500*4 hours*26): $8060,000 Fixed OH budget Variance: Budgeted Fixed OH -Actual Fixed OH 8060,000 -8625,000 = $ 565,000 U Fixed OH Volume Variance; Std Fixed OH for actua output - Budgetd fixed OH 7748,000-8060,000 = 312,000

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