8-23 Overhead variances, service sector. Meals on Wheels (MOW) operates a meal home-delivery ser- vice. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax orders to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time. MOW's owner, Josh Carter, obtains the following information for May overhead costs: Meals on Wheels (May) Output units (number of deliveries) Hours per delivery Hours of delivery time Variable overhead cost per hour of delivery time Variable overhead costs Fixed overhead costs Actual Results 8,800 5,720 $10,296 $38,600 Static Budget 10,000 0.70 $1.50 $35,000 Required 1. Calculate rate and efficiency variances for MOW's variable overhead in May. 2. Calculate the rate variance and production-volume variance for MOW's fixed overhead in May. 3. Comment on MOW's overhead variances, and suggest how Josh Carter might manage MOW's variable overhead differently from its fixed overhead costs.

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Chapter1: Financial Statements And Business Decisions
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8-23 Overhead variances, service sector. Meals on Wheels (MOW) operates a meal home-delivery ser-
vice. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax
orders to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time. MOW's
owner, Josh Carter, obtains the following information for May overhead costs:
Meals on Wheels (May)
Output units (number of deliveries)
Hours per delivery
Hours of delivery time
Variable overhead cost per hour of delivery time
Variable overhead costs
Fixed overhead costs
Actual
Results
8,800
5,720
$10,296
$38,600
Static
Budget
10,000
0.70
$ 1.50
20MMY
$35,000
Required
1. Calculate rate and efficiency variances for MOW's variable overhead in May.
2. Calculate the rate variance and production-volume variance for MOW's fixed overhead in May.
3. Comment on MOW's overhead variances, and suggest how Josh Carter might manage MOW's variable
overhead differently from its fixed overhead costs.
Transcribed Image Text:8-23 Overhead variances, service sector. Meals on Wheels (MOW) operates a meal home-delivery ser- vice. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax orders to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time. MOW's owner, Josh Carter, obtains the following information for May overhead costs: Meals on Wheels (May) Output units (number of deliveries) Hours per delivery Hours of delivery time Variable overhead cost per hour of delivery time Variable overhead costs Fixed overhead costs Actual Results 8,800 5,720 $10,296 $38,600 Static Budget 10,000 0.70 $ 1.50 20MMY $35,000 Required 1. Calculate rate and efficiency variances for MOW's variable overhead in May. 2. Calculate the rate variance and production-volume variance for MOW's fixed overhead in May. 3. Comment on MOW's overhead variances, and suggest how Josh Carter might manage MOW's variable overhead differently from its fixed overhead costs.
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