At the beginning of the year, Blue Bird Manufacturing estimated that its annual variable factory overhead would be $415,000, and its fixed factory overhead would be $895,000. The company's payroll consisted of 15 direct labor employees, and each was expected to work 1,850 direct labor hours. Blue Bird applies overhead to products based on direct labor hours. Each finished unit produced by the company is anticipated to require three (3) direct labor hours. Actual production and cost information for the year is as follows:

Total units produced 8,950

Actual variable overhead $340,000

Actual fixed overhead $911,000

Actual labor hours 27,000

Required:

(a) Compute the variable overhead variances. (b) Compute the fixed overhead variance.

Variable overhead variance = 11360 fav

Fixed overhead variance=64379 unfav

Explanation:

First we find the rates and then put them into formulas to get the variances.

Blue Bird Manufacturing

Estimated annual variable factory overhead $415,000

Estimated fixed factory overhead $895,000.

Estimated Hours = 15 * 1850 = 27750

Estimated Fixed Overhead Rate = $895,000/27750 = 32.25

Estimated Variable Overhead Rate = $415,000/27750 = 14.96

Total units produced 8,950

Actual variable overhead $340,000

Actual fixed overhead $911,000

Actual labor hours 27,000

The variable and fixed overhead variances can be calculated as follows in two steps.

Variable overhead variance = 11360 fav

Variable overhead variance = Variable overhead Efficiency variance+Variable overhead Rate variance = 140 fav+11220 fav=11360 fav

Variable overhead Efficiency variance = Actual Variable Overhead - Actual hours * Standard Rate

=$415,000 - (27750 * 14.96)

=$415,000-$415,140

= 140 fav

Variable overhead Rate variance = Actual hours * Standard Rate - Standard hours * Standard Rate

= (SH - AH) SR

= (27750 - 27000) 14.96

= 750*14.96

= 11220 fav

Fixed overhead variance=64379 unfav

Fixed overhead variance=Fixed overhead spending variance+Fixed overhead volume variance=40189.1+24190 = 64379 unfav

Fixed overhead spending variance = Actual Fixed overhead - Budgeted Fixed overhead

= $911,000 - (27000 * 32.25)

=911000-870810.8

=40189.1 unfavorable

Fixed overhead volume variance=Budgeted Fixed overhead - Applied Fixed overhead

= (Actual Overhead * standard Rate) - Actual Fixed Overhead

= (27000 * 32.25) - $895,000

=870810.8-$895,000

=24190 unfavorable