Zepol company is planning to produce 600,000 power drills for the coming year. T
ID: 2561673 • Letter: Z
Question
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 .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:
Actual Production (units) 592,000 Actual variable overhead $928,000
Actual direct labor hours (AH) 446,000 Actual fixed overhead $835,600
Required:
1. Compute the applied fixed overhead
2. Compute the fixed overhead spending and volume variances
3. Compute the applied variable overhead
4. Compute the variable overhead spending and efficiency variances
Explanation / Answer
1) Expected direct labor hours (600000*0.75) = 450000 Budgeted Fixed overhead = $832500 Pre-determined fixed overhead rate per hour (832500/450000) = $1.85 per hour Applied overhead (1.85*446000) = $825100 2) FOH budget spending variance Actual FOH Budgeted FOH Total variance F/U 835600 832500 -3100 U FOH volume variance Budgeted FOH Applied FOH Total variance F/U 832500 825100 -7400 U 3) Expected direct labor hours (600000*0.75) = 450000 Budgeted variable overhead = ($1777500-$832500) = $945000 Pre-determined fixed overhead rate per hour (945500/450000) = $2.101 per hour Applied overhead (2.101*446000) = $937046 4) VOH spending variance AR (a) SR (b) Variance (c=b-a) Hours (d) Total variance (e=c*d) F/U 2.08 2.101 0.02 446000 9046 F (928000/446000) VOH efficiency variance AH (a) SH (b) Variance (c=b-a) Price (d) Total variance (e=c*d) F/U 446000 444000 -2000 2.101 -4202 U (592000*0.75)
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