The loan department of Calgary Bank uses standard costs to determine the overhea

Question

The loan department of Calgary Bank uses standard costs to determine the overhead cost of processing loan applications. During the current month, a fire occurred, and the accounting records for the department were mostly destroyed. The following data were salvaged from the ashes.

(a)

Determine the following. (and Favorable / Unfavorable )

(b)

Determine how many loans were processed.

Standard variable overhead rate per hour $9 Standard hours per application 2 Standard hours allowed 2,000 Standard fixed overhead rate per hour $6 Actual fixed overhead cost $12,600 Variable overhead budget based on standard hours allowed $18,000 Fixed overhead budget $12,600 Overhead controllable variance $1,200 U

Explanation / Answer

Overhead controllable variance = Actual overhead -standard cost for actual output

   1200 = AO - [(2000*9)variable overhead + 12600fixed overhead]

    1200 =AO - 30600

Actual overhead = 30600+1200 = 31800

           

2)

Actual variable overhead cost = 31800- 12600 fixed overhead (actual)

                 19200

3)Variable overhead costs applied = standard hours allowed *standard variable overhead rate

                    2000* 9

                  18000

4)Fixed overhead costs applied = 2000*6

                       = $ 12000

5)Overhead volume variance= budgeted fixed overhead -standard fixed overhead

             = 12600-12000

                 = 600 U

B)Number of loans processed =standard hours allowed /standard hours per loan

             = 2000/2

                = 1000

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