Question

Factory Overhead Cost Variances

Blumen Textiles Corporation began April with a budget for 23,000 hours of production in the Weaving Department. The department has a full capacity of 31,000 hours under normal business conditions. The budgeted overhead at the planned volumes at the beginning of April was as follows:

Variable overhead	$80,500
Fixed overhead	55,800
Total	$136,300

The actual factory overhead was $137,900 for April. The actual fixed factory overhead was as budgeted. During April, the Weaving Department had standard hours at actual production volume of 24,000 hours. Determine the variable factory overhead controllable variance and the fixed factory overhead volume variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your interim computations to the nearest cent, if required.

a. Variable factory overhead controllable variance: $   

b. Fixed factory overhead volume variance: $  

Answer 1

1) Variable factory overhead controllable variance = Standard variable overhead - Actual variable overhead

= (Standard hours * Standard rate of variable overhead) - actual overhead

= (24,000 hours*$3.5) – $82,100 = $1,900 Favorable

Working:

Budgeted Variable Overhead rate per hour = Budgeted Variable Overhead/Total Budgeted hours

$80,500/23,000 hours=$3.5

The actual factory overhead was $137,900

The actual fixed factory overhead was as budgeted

So the Actual Fixed Cost = $ 55,800 Then Actual variable factory overhead cost=137,900-55,800                                                                     =$82,100

2) Fixed factory overhead volume variance = Absorption rate of fixed overhead * ( Standard hours - Budgeted Hours)

= $1.80(24,000 hours – 31,000 hours) = $12,600 unfavorable

\Note:

Absorption rate of fixed Overhead per hour = Budgeted fixed Overhead/Total Budgeted hours

     55,800$/31,000 hours=$1.8