Variable and Fixed Overhead Variances LOI, 7,8 Franklin Glass Works\'s productio

Question

Variable and Fixed Overhead Variances LOI, 7,8 Franklin Glass Works's production budget for the year ended November 30, 2012, was based on 200,000 units. Each unit requires two standard hours of labor for completion. Total overhead was budgeted at $900,000 for the year, and the fixed overhead rate was estimated to be $3 per unit. Both fixed and variable overhead are assigned to the product on the basis of direct labor hours. The actual data for the year ended November 30, 2012, are as follows: Production in units 198,000 Labor hours 440,000 Variable overhead $352,000 Fixed overhead $575,000

Explanation / Answer

A) Standard hours allowed = Standard hours × Actual production Standard hours allowed = 2 hours per unit × 198,000 units 396,000 Hours Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity Predetermined overhead rate = $900,000 ÷ (200,000 units × 2 hours per unit) = $2.25 per hour Predetermined overhead rate = Fixed component of predetermined overhead rate + Variable component of predetermined overhead rate $2.25 per hour = $1.50 per hour + Variable component of predetermined overhead rate Variable component of predetermined overhead rate = $0.75 per hour Standard Rate = SR $0.75 per hour Actual Hours = AH 440,000 hours Actual Variable Overhead = AH x AR $352,000 Standard Hours = 198,000 units × 2 hours per unit = 396,000 hours B) Variable overhead efficiency variance = (AH - SH) x SR Variable overhead efficiency variance = (440,000 hours - 396,000 hours) x $0.75 per hour $33,000.00 UF C) Variable overhead rate variance = (AH × AR) - (AH × SR) Variable overhead rate variance = $352,000 - (440,000 hours × $0.75 per hour) $22,000 UF D) Fixed Overhead Spending = Actual fixed overhead - Budgeted fixed overhead Fixed overhead spending = $575,000 - (3 x 200,000 units) $25,000.00 F E) Fixed Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process Fixed Manufacturing overhead applied = Predetermined overhead rate × Standard hours allowed for the actual output Fixed Manufacturing overhead applied = 198,000 units × $1.50 per hour × 2 hours per unit $594,000 Budgeted Fixed overhead Cost = $3 x 200,000 units $600,000 Fixed Volume variance = $600,000 - $594000 $6,000 UF

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