A company supplies a savoury sauce to the hotel industry. The standard cost for one unit for June2016 was as follows:Direct materialsDirect labourOverheads (based upon an overhead absorption rate of $4 per labour-hour) 125kg @ $4 per kg4 hours @ $6 per hour$202460Budgeted output in June was 1 200 units. The actual results were as follows:1 300 units were madeii. Direct materials used were 6 600 kgs at a total cost of $25 080iii. Direct labour was 5 330 hours at a cost of $32 513iv. Actual fixed overheads were $22 000i.Required:Calculate the following:Fixed overhead price varianceii. Fixed overhead efficiency varianceiii. Fixed overhead capacity variancei.

Answered: A company supplies a savoury sauce to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A company supplies a savoury sauce to the hotel industry. The standard cost for one unit for June
2016 was as follows:
Direct materials
Direct labour
Overheads (based upon an overhead absorption rate of $4 per labour-hour) 12
5kg @ $4 per kg
4 hours @ $6 per hour
$20
24
60
Budgeted output in June was 1 200 units. The actual results were as follows:
1 300 units were made
ii. Direct materials used were 6 600 kgs at a total cost of $25 080
iii. Direct labour was 5 330 hours at a cost of $32 513
iv. Actual fixed overheads were $22 000
i.
Required:
Calculate the following:
Fixed overhead price variance
ii. Fixed overhead efficiency variance
iii. Fixed overhead capacity variance
i.

Expert Solution

Step 1

1. Fixed Overhead price variance : It is also called Fixed overhead Expenditure variance. It can be calculated as follows:

Fixed overhead Price Variance = Budgeted fixed Cost - Actual Fixed Overhead

2. Fixed Overhead Efficiency Variance = This variance made comparison that how much hours are taken and how much hours should be taken to produce the actual output. It can be calculated as follows:

Actual Hours X Standard rate per hour - Standard Hours x Standard rate

3. Fixed Overhead Capacity Variance : This variance helps to find out how much capacity is used than the budgeted.

Actual Hours x standard rate - Budgeted Hours x Standard rate

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