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14 December, 06:24

Montoursville Control Company, which manufactures electrical switches, uses a standard costing system. The standard production overhead costs per switch are based on direct-labor hours and are as follows:

Variable overhead (5 direct-labor hours @ $12.00 per hour) $60

Fixed overhead (5 direct-labor hours @ $22.00 per hour) * 110

Total overhead $170



Based on the capacity of 308.000 direct-labor hours per month.

The following information is available for the month of October.

- Variable overhead costs were $5,460,000.

- Fixed overhead costs were $8,025,000.

- 58,600 switches were produced, although 61,600 switches were scheduled to be produced.

- 291,000 direct-labor hours were worked at a total cost of $5,425,000.

Required:

Compute the variable-overhead spending and efficiency variances and the fixed-overhead budget and volumes variances for Octobers.

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Answers (1)
  1. 14 December, 09:21
    0
    Variable Overhead Spending Variance $140,000 Unfavorable

    Variable Overhead Efficiency Variance $40,000 Favorable

    Fixed Overhead Budget Variance $150,000 Unfavorable

    Fixed Overhead Volume Variance $240,000 Unfavorable

    Explanation:

    Variable Overhead Spending Variance $140,000 Unfavorable

    (Standard rate - actual rate) * actual hours

    ($8 - $8.5) * 275,000 hours

    = $140,000 Unfavorable

    Variable Overhead Efficiency Variance $40,000 Favorable

    (Standard hours - Actual Hours) * Standard Rate

    (280,000 hours - 275,000) * $8

    = $40,000 Favorable

    Fixed Overhead Budget Variance $150,000 Unfavorable

    $7,875,000 - $8,025,000 = $150,000 Unfavorable

    Fixed Overhead Volume Variance $240,000 Unfavorable

    $7,785,000 - $8,025,000 = $240,000 Unfavorable
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