Overhead Application, Fixed and Variable Overhead Variances Zepol Company is pla
ID: 2534766 • Letter: O
Question
Overhead Application, Fixed and Variable Overhead Variances
Zepol Company is planning to produce 600,000 power drills for the coming year. The company uses direct labor hours to assign overhead to products. Each drill requires 0.75 standard hour of labor for completion. The total budgeted overhead was $1,777,500. The total fixed overhead budgeted for the coming year is $832,500. Predetermined overhead rates are calculated using expected production, measured in direct labor hours. Actual results for the year are:
Required:
1. Compute the applied fixed overhead.
$
2. Compute the fixed overhead spending and volume variances. Enter amounts as positive numbers and select Favorable or Unfavorable.
3. Compute the applied variable overhead.
$
4. Compute the variable overhead spending and efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable.
Actual production (units) 594,000 Actual variable overhead $928,000 Actual direct labor hours (AH) 446,000 Actual fixed overhead $835,600Explanation / Answer
Solution:
Part 1 – Applied Fixed Overhead
Total Budgeted Fixed Overhead = $832,500
Total Budgeted Labor Hours = Total Drills budgeted 600,000 * 0.75 std hours required per drill = 450,000 Hours
Predetermined Fixed Overhead Rate = Total Budgeted Fixed OH / Total Budgeted Labor Hours
= $832,500 / 450,000
= $1.85 per hour
Actual direct labor hour used = 446,000
Predetermined Fixed Overhead Rate = $1.85 per hour
Applied Fixed Overhead = Actual DLH 446,000 * 1.85 = $825,100
Part 2 ---
Fixed Overhead Expenditure/Spending/Budget Variance
Budgeted Fixed Overheads (BFOH)
$832,500
Actual Fixed Overheads (AFOH)
$835,600
Fixed Overhead Expenditure Variance (AFOH - BFOH)
$3,100
Unfavorable
Fixed Overhead Volume Variance
Budgeted Fixed Overheads
$832,500
Absorbed Fixed Overheads (Refer Part 1)
$825,100
Fixed Overhead Volume Variance
$7,400
Unfavorable
Part 3 --- Applied Variable Overhead
Budgeted Variable Overhead = Total Overhead 1,777,500 – Fixed Overhead 832,500 = 945,000
Budgeted Labor Hours as calculated in part 1 = 450,000 Hours
Variable Overhead Per Hour = 945,000 / 450,000 = $2.10 per hour
Applied Variable Overhead = Actual Direct Labor Hours used 446,000 * Variable Overhead Rate $2.10 = $936,600
Part 4
Variable Overhead Spending/Rate Variance
Actual Hourly Variable Overhead Rate (928,000 / 446,000)
2.08
Per Hour
Standard Hourly Variable Overhead Rate (SV) (Refer Note 1)
2.10
Per Hour
Variance or Difference in Rate
0.02
Per Hour
x Actual Direct Labor Hours Worked
446000
Hours
Variable Overhead Rate Variance
$8,600
Favorable
Variable Overhead Efficiency/Quantity Variance
Standard Hours Allowed for actual production:
Actual Production
594,000
Pools
x Allowed Standard Hours Per Unit
0.75
DLH
Total Standard Hours Allowed for actual production (SHAP)
445500
hours
Actual Machine Hours (AH)
446000
Hours
Variance or Difference in Hours (SHAP - AH)
500
hours
x Standard Hourly Variable Overhead Rate
$2.10
per hour
Variable Overhead Efficiency Variance
$1,050
Unfavorable
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Fixed Overhead Expenditure/Spending/Budget Variance
Budgeted Fixed Overheads (BFOH)
$832,500
Actual Fixed Overheads (AFOH)
$835,600
Fixed Overhead Expenditure Variance (AFOH - BFOH)
$3,100
Unfavorable
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