Answer:
1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances.
- variable overhead cost variance = $1,000 unfavorable
- variable efficiency variance = -$1,200 favorable
- fixed overhead costs = $1,500 unfavorable
- fixed overhead volume variance = -$100 favorable
2. EXPLAIN (as best you can) why the variances are favorable or unfavorable. Based on cost and efficiency budget standards.
- variable overhead cost variance is unfavorable because actual variable overhead costs per unit are higher than budgeted.
- variable efficiency variance is favorable because the company used less direct labor hours than budgeted to produce a higher amount of units (1,600 vs. 2,000).
- fixed overhead costs are unfavorable because total fixed overhead costs were much higher than budgeted, but most of this variance can be explained by higher output.
- fixed overhead volume variance are favorable because a higher volume was produced using less hours than budgeted.
Explanation:
Static budget variable overhead $1,200
Actual variable overhead $4,000
Static budget fixed overhead $1,600
Actual fixed overhead $3,100
Static budget direct labor hours 800 hours
Actual direct labor hours 1,600
Static budget number of units 400 units
Actual units produced 1,000
Standard direct labor hours 2 hours per unit
Actual direct labor hours 1.6 per unit
standard variable rate = $1,200 / 400 units = $3 per unit
actual variable rate = $4,000 / 1,000 units = $4 per unit
standard fixed rate = $1,600 / 800 hours = $2 per hour
actual fixed rate = $3,100 / 1,600 hours = $1.9375 per hour
variable overhead cost variance = actual costs - (standard rate x actual units) = $4,000 - ($3 x 1,000) = $1,000 unfavorable
variable efficiency variance = (actual hours x standard rate) - (standard hours x standard rate) = (1,600 × $3) − (2,000 x $3) = $4,800 - $6,000 = -$1,200 favorable
fixed overhead costs = actual overhead costs - budgeted overhead costs = $3,100 - $1,600 = $1,500 unfavorable
fixed overhead volume variance = (actual fixed rate x actual hours) - (standard rate x actual hours) = ($1.9375 x 1,600) - ($ x 1,600) = $3,100 - $3,200 = -$100 favorable
