Amnesty Elements uses a standard cost system, applying manufacturing overhead on

Question

Amnesty Elements uses a standard cost system, applying manufacturing overhead on the basis of machine hours. The company's overhead standards per unit are shown below.

            Variable overhead: 4 hours at $9 per hour
            Fixed overhead: 4 hours at $6* per hour
                        *Based on planned monthly activity of 120,000 machine hours
            Actual data for May were:
            Number of units produced: 29,000
            Number of machine hours worked: 125,000
            Variable overhead costs incurred: $1,085,000
            Fixed overhead costs incurred: $755,000

A. Calculate the spending and efficiency variances for variable overhead.
B. Calculate the budget and volume variances for fixed overhead.

Explanation / Answer

A).

1). Variable Overhead Spending Variance :-

= Actual Hours * (Standard Rate - Actual Rate)

= 125000H * ($9 - $8.68)............................................($1085000/125000= $8.68)

= 125000H * $0.32

= $40000 F

2) Variable Overhead Efficiency Variance :-

= Standard overhead rate * (Standard hours - Actual hours)

= $9 * (116000H - 125000H)...................................(29000*4H=116000H)

= $81000 U

B)

1). Fixed Overhead Budget Variance :-

= Actual Fixed Overheads - Budgeted Fixed Overheads

= $755000 - ($6*120000)

= $755000 - $720000

= $35000 U

2). Fixed Overhead Volume Variance :-

= Standard Rate * (Actual Hours - Standard Hours)

= $6 * (125000H - 116000H)

= $6 * 9000H

= $54000 F

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