Answer:
a)Standard overhead rate = $2,300 / 575 = $4 /hour
Standard hours for actual production = 20000*0.025 = 500 hours
Actual rate of variable overhead = $5,350 / $460 = $11.63 per direct labor hour
Actual direct labor hours = 460
Variable overhead spending variance = Actual hours worked x (Actual overhead rate - standard overhead rate)
Variable overhead spending variance = 460 * ($11.63 - $4 ) = $3,510 UF
Variable overhead efficiency variance = Standard overhead rate x (Actual hours - standard hours)
Variable overhead efficiency variance = $4 * (460 - 500) = 160 (F)
Budgeted fixed overhead = $23,000
Actual fixed overhead = $26,000
Fixed overhead rate = $23,000 / 575 = $40 per hour
Fixed overhead applied =500 * $40 = $20,000
Fixed overhead cost variance = Actual Fixed overhead - Budgeted fixed overhead = $26,000 - $23,000 = $3,000 UF
Fixed overhead volume variance = (units produced - budgeted production) x budgeted overhead rate
fixed overhead volume variance = (20000 - 23000) x $23000/23000
fixed overhead volume variance = 3000 x 1 = 3000 UF
b) Budgeted performance and actual performance may differ due to change the environment. In this case, actual cost may be higher or lower than standard cost. Therefore variances are occured. Variance is favorable when actual cist is lower than standard cost, while variance is unfavorable when f actual cost is higher than standard cost.
