Gannon Corporation produces paper ne company has devekped standard overhead rate

Question

Gannon Corporation produces paper ne company has devekped standard overhead rates based on capacity of 180,000 direct-lahor hours as follow mcmthly Standard costs per unit (one bos of paper) Variable ovred 2 direct-labor hours $3 per hour) 6 Fixed overhead 2 direct-lahor hours S5 per hour) Total standard cost per unit of output 10 $16 During April, 90,000 units were scheduled for The following data relate to April production: however, only 80,000 units were actually produced Actual direct labor cost incurred was S1,567.500 for 165.000 actual hours of work 2Actual overhead incurred totaled $1,371,500, of which S1500 was variable and $860.000 was fixed. Reaaired Compute the following variances for the month of April, indicating whether each vaince is favorable or Fixed-overhead budget variance. Fixed-overhead volume variance.

Explanation / Answer

Question 1). Solution :-

Variable-overhead spending variance = (Standard variable overhead - Actual variable overhead).

= (165000 * 3) - 511500

= 495000 - 511500

= $ 16500 (Unfavourable).

Question 2). Solution :-

Variable-overhead efficiency variance = (Standard hours for actual output - Actual hours) * Standard variable overhead rate per hour.

= (80000 * 2 - 165000) * 5

= (160000 - 165000) * 5

= $ 25000 (Unfavourable)

Question 3). Solution :-

Fixed overhead budget variance = (Budgeted fixed overhead - Actual fixed overhead).

= (180000 * 5 - 860000)

= $ 40000 (Favourable).

Question 4). Solution :-

Fixed overhead volume variance = (Standard hours for actual output - Budgeted hours) * Standard fixed overhead rate per hour.

= (80000 * 2 - 90000 * 2) * 5

= (160000 - 180000) * 5

= $ 100000 (Unfavourable)

Conclusion :-

1). Variable-overhead spending variance $ 16500 (Unfavourable) 2). Variable-overhead efficiency variance $ 25000 (Unfavourable) 3). Fixed overhead budget variance $ 40000 (Favourable) 4). Fixed overhead volume variance $ 100000 (Unfavourable)

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