Exercise 9.16
Overhead Variances, Two- And Three-Variance Analyses
Oerstman, Inc., uses a standard costing system and develops itsoverhead rates from the current annual budget. The budget is basedon an expected annual output of 120,000 units requiring 480,000direct labor hours. (Practical capacity is 500,000 hours.) Annualbudgeted overhead costs total $787,200, of which $556,800 is fixedoverhead. A total of 119,400 units using 478,000 direct labor hourswere produced during the year. Actual variable overhead costs forthe year were $230,600, and actual fixed overhead costs were$556,250.
Required:
1. Compute overhead variances using atwo-variance analysis.
Budget Variance $_____ Favorable or Unfavorable Volume Variance $_____ Favorable or Unfavorable
2. Compute overhead variances using athree-variance analysis.
Spending Variance $____ Favorable or Unfavorable Efficiency Variance $____ Favorable or Unfavorable Volume Variance $____ Favorable or Unfavorable
Exercise 9.16
Overhead Variances, Two- And Three-Variance Analyses
Oerstman, Inc., uses a standard costing system and develops itsoverhead rates from the current annual budget. The budget is basedon an expected annual output of 120,000 units requiring 480,000direct labor hours. (Practical capacity is 500,000 hours.) Annualbudgeted overhead costs total $787,200, of which $556,800 is fixedoverhead. A total of 119,400 units using 478,000 direct labor hourswere produced during the year. Actual variable overhead costs forthe year were $230,600, and actual fixed overhead costs were$556,250.
Required:
1. Compute overhead variances using atwo-variance analysis.
| Budget Variance | $_____ | Favorable or Unfavorable |
| Volume Variance | $_____ | Favorable or Unfavorable |
2. Compute overhead variances using athree-variance analysis.
| Spending Variance | $____ | Favorable or Unfavorable |
| Efficiency Variance | $____ | Favorable or Unfavorable |
| Volume Variance | $____ | Favorable or Unfavorable |
Related questions
Overhead Variances, Four-Variance Analysis
Oerstman, Inc., uses a standard costing system and develops itsoverhead rates from the current annual budget. The budget is basedon an expected annual output of 128,000 units requiring 512,000direct labor hours. (Practical capacity is 532,000 hours.) Annualbudgeted overhead costs total $844,800, of which $604,160 is fixedoverhead. A total of 119,500 units using 510,000 direct labor hourswere produced during the year. Actual variable overhead costs forthe year were $262,000, and actual fixed overhead costs were$555,550.
Required:
1. Compute the fixed overhead spending andvolume variances.
| Fixed Overhead Spending Variance | $ | |
| Fixed Overhead Volume Variance | $ |
2. Compute the variable overhead spending andefficiency variances. Do not round intermediate calculations
| Variable Overhead Spending Variance | $ | |
| Variable Overhead Efficiency Variance | $ |
E23-20 Computing overhead variances
Grand Fender is acompetitor of Pro Fender. Grand Fender alsouses a standard cost system and provides the followinginformation:
| Static budget variable overhead | $5,630 |
| Static budget fixed overhead | $22,520 |
| Static budget direct labor hours | 563 hours |
| Static budget number of units | 21,000 units |
| Standard direct labor hours | 0.026 hours per fender |
Grand Fender allocates manufacturing overhead to productionbased on standard direct labor hours. Grand Fender reported thefollowing actual results for 2016: actual number of fendersproduced, 20,000; actual variable overhead, $5,200; actual fixedoverhead, $24,000; actual direct labor hours, 480.
Requirements
1. Compute the overhead variance for the year: variable overheadcost variance, variable overhead efficiency variance, fixedoverhead cost variance, and fixed overhead volume variance.
2. Explain why the variances are favorable or unfavorable
âWonderful! Not only did our salespeople do a good job inmeeting the sales budget this year, but our production people did agood job in controlling costs as well,â said Kim Clark, presidentof Martell Company. âOur $42,400 overall manufacturing costvariance is only 4% of the $1,536,000 standard cost of productsmade during the year. Thatâs well within the 3% parameter set bymanagement for acceptable variances. It looks like everyone will bein line for a bonus this year.â |
| The company produces and sells a single product. The standardcost card for the product follows:
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