Question

1. Albertville has budgeted fixed overhead of $67,500 based on budgeted production of 4,500 units. During July, 4,700 units were produced and $71,400 was spent on fixed overhead. What is the fixed overhead spending variance?a. $3,900 unfavorableb. $900 unfavorablec. $900 favorabled. $3,000 favorable2. Albertville has budgeted fixed overhead of $67,500 based on budgeted production of 4,500 units. During July, 4,700 units were produced and $71,400 was spent on fixed overhead. What is the fixed overhead volume variance?a. $3,900 unfavorableb. $900 unfavorablec. $900 favorabled. $3,000 favorable2. Albertville has a direct labor standard of 2 hours per unit of output. Each employee has a standard wage rate of $22.50 per hour. During July, Albertville paid $189,500 to employees for 8,890 hours worked. 4,700 units were produced during July. What is the direct labor rate variance?a. $22,000 favorableb. $11,475 favorablec. $10,525 favorabled. $10,525 unfavorable

Answer 1

Answer:

A. (a) 3,900 (unfavorable).

B. (d) 3,000 (favorable).

C. (c) 10,525 (favorable).

Explanation:

Requirement A

We know,

Fixed overhead spending variance = (Budgeted fixed overhead - Actual fixed overhead)

Given,

Budgeted fixed overhead = $67,500

Actual fixed overhead = $71,400

Putting the values into the formula, we can get

Fixed overhead spending variance = (Budgeted fixed overhead - Actual fixed overhead)

Or, Fixed overhead spending variance = ($67,500 - $71,400)

Or, Fixed overhead spending variance = -3,900

Therefore, Fixed overhead spending variance = 3,900 (unfavorable).

Since Budgeted fixed overhead is less than Actual fixed overhead, the situation is unfavorable.

So option A is the answer.

Requirement B

We know,

Fixed overhead volume variance = (Standard units - Budgeted units) × Standard fixed overhead rate.

Given,

Standard units = 4,700 units

Budgeted units = 4,500 units

Standard fixed overhead rate = $67,500 ÷ 4,500

Standard fixed overhead rate = $15

Putting the values into the formula, we can get

Fixed overhead volume variance = (4,700 - 4,500) × $15

Or, Fixed overhead volume variance = 200 × $15

Or, Fixed overhead volume variance = 3,000

Therefore, Fixed overhead volume variance = 3,000 (favorable)

Since budgeted fixed volume is higher than Actual fixed volume, the situation is favorable.

So option D is the answer.

Requirement C

We know,

Direct labor rate variance = (Standard rate - Actual rate) × Actual hour

Given,

Standard rate = $22.50

Actual rate = $189,500 ÷ 8,890 = 21.3161

Actual hour = 8,890

Putting the values into the formula, we can get

Direct labor rate variance = ($22.50 - 21.3161) × 8,890

Or, Direct labor rate variance = 1.1839 × 8,890

Or, Direct labor rate variance = 10,525

Therefore, Direct labor rate variance = 10,525 (favorable).

Since direct labor rate is higher than Actual labor rate, the situation is favorable.

So option C is the answer.