The following data are the actual results for Marvelous Marshmallow Company for

Question

The following data are the actual results for Marvelous Marshmallow Company for October. Actual output Actual variable overhead Actual fixed overhead Actual machine time 7,000 cases $421,000 $106,000 36,100 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 $ 11.00 per machine hour 5 hours per case of marshmallows $100,000 per month 10,000 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

Explanation / Answer

Solution:

Variable Overhead Spending Variance

Actual Variable Overhead (A)

$421,000

Standard Variable Overhead

(Actual Machine Hours 36,100 x Std Variable Overhead Rate $11)) (B)

$397,100

Variable Overhead Rate Variance (A-B)

$23,900

Unfavorable

Variable Overhead Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production

7,000

Cases

x Allowed Standard Hours Per Unit

5

hours

Total Standard Hours Allowed for actual production (SHAP)

35000

hours

Actual Machine Hours Worked (AH)

36100

Hours

Variance or Difference in Hours (AH - SHAP)

1100

hours

x Standard Hourly Variable Overhead Rate

$14

per hour

Variable Overhead Efficiency Variance

$15,400

Unfavorable

Fixed Overhead Budget Variance

Budgeted Fixed Overheads (BFOH)

$100,000

Actual Fixed Overheads (AFOH)

$106,000

Fixed Overhead Budget Variance (BFOH - AFOH)

$6,000

Unfavorable

Fixed Overhead Volume Variance

Budgeted Fixed Overhead Rate = Budgeted Fixed Overhead / Budgeted Output

= 100,000 / 10,000 Cases

= $10 per cases

Fixed Overhead Volume Variance

Absorbed Fixed Overheads (A) (Actual Production 7,000 Cases x Budgeted FOH Rate $10 per case)

$70,000

Budgeted Fixed Overheads (B)

$100,000

Fixed Overhead Volume Variance (A-B)

$30,000

Unfavorable

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Variable Overhead Spending Variance

Actual Variable Overhead (A)

$421,000

Standard Variable Overhead

(Actual Machine Hours 36,100 x Std Variable Overhead Rate $11)) (B)

$397,100

Variable Overhead Rate Variance (A-B)

$23,900

Unfavorable

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