Question

Variable Overhead VariancesMorgan Tax Company considers 6,000 direct labor hours or 300 tax returns its normal monthly capacity. Its standard variable overhead rate is $9 per direct labor hour. During the current month, $45,400 of variable overhead cost was incurred in working 5,600 direct labor hours to prepare 270 tax returns. Determine the following variances, and indicate whether each is favorable or unfavorable:Determine the following variances:Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable.Variable Overhead VariancesActual cost: $Answer Split cost: $Answer Standard cost: $Answer a. Variable overhead spending $Answer AnswerFUb. Variable overhead efficiency $Answer AnswerFU

Answer 1

Answer:

Capacity Variance or volume variance. 3,600U

Efficiency 1,800U

Spending 5,000U

Explanation:

OVERHEAD-THREE VARIANCE METHOD

Efficiency:

Difference between expected hours and actual hours.

Actual hour based on standard rate - Standard hour based on standard rate

6,000 / 300 = 20 hours per tax return

270 tax return x 20 = 5,400

actual hours               5,600

(5,400 - 5,600 ) 9 =1,800 U

Spending Variance

The difference between the expected overhead and the actual cost for overhead

Actual variable overhead: 45,400

expected overhead 5,600 x 9 = 50,400

50,400 - 45,400 = 5,000

Capacity Variance or volume variance.

Difference for overabsorption or underabsorption because difference in actual hours and normal capacity

Company's normal capacity: 6000 DL

Actual Direct Labor hour  5,600

(5,600 - 6,000) x 9 = 3,600U