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 (5 direct-labor hours $13.00 per hour) $ 65 Fixed overhead (5 direct-labor hours $21.00 per hour)*105 $170 Total overhead *Based on capacity of 302,500 direct-labor hours per month. The following information is available for the month of October .Variable overhead costs were $4,140,000. . Fixed overhead costs were $6,375,000 57,500 switches were produced, although 60,500 switches were scheduled to be produced. 280,000 direct-labor hours were worked at a total cost of $4,325,000. 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

Solution:

Variable Overhead Spending Variance = Actual Labor Hours x Actual VOH Rate) – (Actual Labor Hour x Std VOH Rate per hour)

= $4,140,000 – (280,000 DLH x $13)

= 4,140,000 - $3,640,000

= $500,000 Unfavorable

Variable Overhead Efficiency Variance = Std VOH Rate (Actual Hours – Std Hours allowed for actual production)

Std Hours allowed for actual production = Actual Units Produced 57,500 x Std DLH per unit 5 = 287,500 DLH

Variable Overhead Efficiency Variance = Std VOH Rate $13 (Actual Hours 280,000 – Std Hours allowed for actual production 287,500)

= $97,500 Favorable

Fixed Overhead Budget Variance

Fixed Overhead Budget Variance

Budgeted Fixed Overheads (BFOH)

(monthly capacity 302,500 DLHs x $21)

$6,352,500

Actual Fixed Overheads (AFOH)

$6,375,000

Fixed Overhead Expenditure Variance (AFOH - BFOH)

$22,500

Unfavorable

Fixed Overhead Volume Variance

Fixed Overhead Volume Variance

Budgeted Fixed Overheads

$6,352,500

Absorbed Fixed Overheads

(280,000 Hours worked x FOH Rate $21)

$5,880,000

Fixed Overhead Volume Variance

$472,500

Unfavorable

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Fixed Overhead Budget Variance

Budgeted Fixed Overheads (BFOH)

(monthly capacity 302,500 DLHs x $21)

$6,352,500

Actual Fixed Overheads (AFOH)

$6,375,000

Fixed Overhead Expenditure Variance (AFOH - BFOH)

$22,500

Unfavorable

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