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Sedona Company set the following standard costs for one unit of its product for 2017.

The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.

AH = Actual Hours
SH = Standard Hours
AVR = Actual Variable Rate
SVR = Standard Variable Rate
SFR = Standard Fixed Rate

Direct material (20 Ibs. @ $2.50 per Ib.) $ 50.00 Direct labor (10 hrs. @ $22.00 per hr.) 220.00 Factory variable overhead (10 hrs. @ $4.00 per hr.) 40.00 Factory fixed overhead (10 hrs. @ $1.60 per hr.) 16.00 Standard cost $ 326.00 1. Compute the variable overhead spending and efficiency variances. Actual Variable OH Cost Flexible Budget Standard Cost (VOH applied) 2. Compute the fixed overhead spending and volume variances and classify each as favorable or unfavorable. (Round "Rate per unit" to 2 decimal places.) Actual Fixed OH cost Fixed OH (Fixed Budgeted) Standard Cost (FOH applied)

Explanation / Answer

1 variable overhead spending variance=(Standard Rate-Actual Rate)*actual hours worked (4-1375000/340000)*340000 $                                                                            15,000.00 unfavourable variable overhead efficiency variance=(Standard hour-Actual hour)*Standard rate (350000-340000)*4 $                                                                            40,000.00 Favourable 2 fixed overhead spending variance=Actual fixed overhead-Budgeted fixed overhead (628600-600000) $                                                                            28,600.00 Unfavourable fixed overhead volume variance=Absorbed fixed overhead-Budgeted fixed overhead (350000 hours*1.60 per hour-600000) $                                                                            40,000.00 unfavourable 3 Controllable Variance=Actual overhead-(budgeted allowance based on standard hours allowed) (2003600-2000000) $          3,600.00 unfavourable budgeted allowance based on standard hours allowed Fixed $      600,000.00 variable-35000 units *10hours*4 per hour $ 1,400,000.00

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