Morgan Tax Company considers 6,000 direct labor hours or 300 tax returns its nor

Question

Morgan Tax Company considers 6,000 direct labor hours or 300 tax returns its normal monthly capacity. Its standard variable overhead rate is $8 per direct labor hour. During the current month, $40,400 of variable overhead cost was incurred in working 5,600 direct labor hours to prepare 270 tax returns. Determine the following variances, and indicate whether each is favorable or unfavorable: Determine the following variances: Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable. Variable Overhead Variances Actual cost: $Answer Split cost: $Answer Standard cost: $Answer a. Variable overhead spending $Answer AnswerFU b. Variable overhead efficiency $Answer AnswerFU

Explanation / Answer

Variable overhead variance = Actual variable overhead cost - Standard variable overhead cost

Actual Cost = $ 40400

Standard cost = $ 43200 ............. 48000 / 300 * 270

= 40,400 - 43200 = 2800 F

a. Variable overhead spending variance = Actual hours worked x (Actual overhead rate - standard overhead rate)

= 5600 * ( 7.2143 - 8 ) = 4400 F

b. Variable overhead efficiency variance = Standard overhead rate x (Actual hours - Standard hours**)

** Note that, here standard hours means, standard hours for actual production ..... i.e 6000 hours for 300 tax returns shall be equivalent to 6000/300 * 270 = 5400 hours

8 x ( 5600 - 5400 ) = 1600 U

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