Exercise 11-26 Straightforward Computation of Overhead Variances (LO 11-5) The f

Question

Exercise 11-26 Straightforward Computation of Overhead Variances (LO 11-5) The following data are the actual results for Marvelous Marshmallow Company for October. Actual output Actual variable overhead$416,000 Actual fixed overhead Actual machine time 14,000 cases $159,000 35,600 machine hours Standard cost and budget information for Marvelous Marshmallow Company follows Standard variable-overhead rate Standard quantity of machine hours Budgeted fixed overhead Budgeted output $ 10.00 per machine hour 2 hours per case of marshmallows $150,000 per month 15,000 cases per month Required: Use any of the methods explained in the chapter to compute the following variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "O" for no effect (i.e., zero variance).) a. Variable-overhead spending variance b. Variable-overhead efficiency variance c. Fixed-overhead budget variance d.Fixed-overhead volume variance Unfavorable Unfavorable Unfavorable Unfavorable

Explanation / Answer

Variable overhead spending variance=(AH*AVR)- (AH*SVR)
AH-actual hours
AVR=actual var rate
SVR=std var rate
AVR=416000/35600=11.69
=35600*(11.69-10)
=60000 and it is unfavourable

4b)Variable over head efficency=SVR*(AH-SH)     AH-actual hours
SH=standard hours
SVR=std var rate
=10*(35600-(2*15000))
=56000 and it is unfavourable

5a) Fixed overhead budget variance= Actual fixed overhead-budgetd fixed overhead
=159000-150000
=9000 and it is unfavourable

Fixed overhead volume variance= Fixed overhead Absorption rate*(Actual output-budget output)
Fixed overhead Absorption rate=150000/15000=10
=10*(14000-15000)
=10000 and it is unfavourable

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