Hellier Contractors paints interiors of residences and commercial structures. Th

Question

Hellier Contractors paints interiors of residences and commercial structures. The firm's management has established cost standards per 100 square feet of area to be painted.

Direct material ($18 per gallon of paint)

$1.50   

Direct labor

2.00

Variable overhead

0.60

Fixed overhead (based on 600,000 square feet per month)

1.25

Management has determined that 400 square feet can be painted by the average worker each hour. During May, the company painted 600,000 square feet of space and incurred the following costs:

Direct material (450 gallons purchased and used)

$ 8,300.00

Direct labor (1,475 hours)

12,242.50

Variable overhead

3,480.00

Fixed overhead

7,720.00

Note: for the Variable overhead variances, use DLH as the allocation base.

1. Determine the Variable overhead spending variance (do not include a negative sign or words in your answer)

2. Was the Variable overhead spending variance favorable or unfavorable?

3. Determine the Variable overhead efficiency variance (do not include a negative sign or words in your answer)

4. Was the Variable overhead efficiency variance favorable or unfavorable?

5. Determine the Total Variable Overhead Variance (do not include a negative sign or words in your answer)

6. Was the Total Variable Overhead Variance favorable or unfavorable?

7. Determine the Fixed overhead spending variance (do not include a negative sign or words in your answer)

8. Determine the Volume variance (do not include a negative sign or words in your answer)

9. Determine the Total Fixed Overhead Variance (do not include a negative sign or words in your answer)

10. Was the Total Fixed Overhead Variance favorable or unfavorable?

11. Identify other cost drivers (other than SF) that could be used as a basis for measuring activity and computing variances for this company. Check all that could apply to this company.

Direct material ($18 per gallon of paint)

$1.50   

Direct labor

2.00

Variable overhead

0.60

Fixed overhead (based on 600,000 square feet per month)

1.25

Explanation / Answer

Standard rate per hour of variable overhead = ($0.60/100) x 400 = $2.4

Standard hours per unit = $0.60/ $2.4 = 0.25 hours

1. Variable overhead spending variance = (SR - AR) x AH

= [$2.4 - ($3480/1475)] x 1475

= $60

2. Variable overhead spending variance is Favorable

3. Variable overhead efficiency variance = (SH - AH) x SR

= [(0.25 x 6000) - 1475] x $2.40

= $60

4. Variable overhead efficiency variance is favorable.

5. Total Variable Overhead Variance = $60 + $60 = $120

6. Total Variable Overhead Variance is favorable.

7. Fixed overhead spending variance = Budgeted - Actual

= ($1.25 x 6000) - $7720

= $220 U

8. Fixed overhead volume variance = Recovered - Budgeted

= $7500 - $7500

= 0

9. Total Fixed Overhead Variance = $220

10. Total Fixed Overhead Variance is unfavorable.

11. The following cost drivers may apply:

number of hours of use of the paint spayers
number of hours worked
number of rooms painted

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