Question

Mcdormand inc reported a 3400 unfavorable price variance for variable overhead and a $34,000 nfavorable price variance for fixed overhead. The flexible budget had variable overhead based on 36,100 direct labor-hours; only 34,100 hours were worked. Total actual overhead was $1,810,400. The number of estimated hours for computing the fixed overhead application rate totaled 37,500 hours.
Required:
a. Prepare a variable overhead analysis.
b. Prepare a fixed overhead analysis.

Answer 1

Answer:

A. Variable overhead price variance 3400 U

Variable overhead efficiency variance 60000 F

Variable overhead cost variance 56600 F

B. Fixed overhead price variance 34000 U

Production volume variance 28000 U

Fixed overhead cost variance 62000 U

Explanation:

a. Preparation of a variable overhead analysis.

Variable overhead price variance = 3400 U

Calculation for Variable overhead efficiency variance

First step is to calculate the Actual input at standard rate

Actual input at standard rate = (34100*30)

Actual input at standard rate= 1023000

Second step is to calculate the Standard rate

Standard rate = 1083000/36100

Standard rate=30

Now let calculate Variable overhead efficiency variance

Variable overhead efficiency variance = (1083000-1023000)

Variable overhead efficiency variance = 60000 F

Calculation for Variable overhead cost variance

Variable overhead cost variance = (60000-3400)

Variable overhead cost variance= 56600 F

Therefore the variable overhead analysis will be:

Variable overhead price variance 3400 U

Variable overhead efficiency variance 60000 F

Variable overhead cost variance 56600 F

b. Preparation of a fixed overhead analysis.

Fixed overhead price variance = 34000 U

Calculation for Production volume variances

First step is to calculate Actual input at standard rate

Actual input at standard rate= 34100*30

Actual input at standard rate= 1023000

Second step is to calculate Fixed overhead actual

Fixed overhead actual= 1810400-(1023000+3400)

Fixed overhead actual= 784000

Third step is to calculate Budgeted fixed overhead

Budgeted fixed overhead = (784000-34000)

Budgeted fixed overhead = 750000

Fourth step is to calculate Fixed overhead applied

Fixed overhead applied= (750000/37500)*36100

Fixed overhead applied= 722000

Now let calculate Production volume variance

Production volume variance = (750000-722000) Production volume variance= 28000 U

Calculation to determine Fixed overhead cost variance

Fixed overhead cost variance = (28000+34000) Fixed overhead cost variance= 62000 U

Therefore fixed overhead analysis will be:

Fixed overhead price variance 34000 U

Production volume variance 28000 U

Fixed overhead cost variance 62000 U