Calgary Paper Company produces paper for photocopiers. The company has developed standard overhead rates based on a monthly capacity of 62,000 direct-labor hours as follows: Standard costs per unit (one box of paper): Variable overhead (2 direct-labor hours @ $4.5 per hour)$9 Fixed overhead (2 direct-labor hours @ $10 per hour) 20 Total$29 During April, 31,000 units were scheduled for production; however, only 26,000 units were actually produced. The following data relate to April. Actual direct-labor cost incurred was $848,000 for 53,000 actual hours of work.Actual overhead incurred totaled $843,800, of which $243,800 was variable and $600,000 was fixed.Required:Prepare two exhibits similar to Exhibit 11-6 and Exhibit 11-8 in the chapter, which show the following variances. State whether each variance is favorable or unfavorable, where appropriate.1. Variable-overhead spending variance.2. Variable-overhead efficiency variance.3. Fixed-overhead budget variance.4. Fixed-overhead volume variance.

Variance arises when there is difference between actual results and budgeted results. The variance is favorable when the actual cost is less than budgeted costs. The variance is unfavorable when the budgeted cost is less than actual costs.Actual Variable OH Actual Quantity x Actual Price Actual Quantity x Standard price Standard qty allowed x Standard price Standard qty x Standard price 53000 4.6 53000 4.5 52000 4.5 52000 4.5 (243800/53000) (26000*2) (26000*2) 243800 238500 234000 234000 5300 U 4500 U Variable overhead spending variance = Projected Variable Overhead - Actual Overhead = 243800 - 238500 = 5300 Unfavorable Variable overhead efficiency variance = Flexible budget - Projected Variable overhead = 238500 - 234000 = 4500 Unfavorable FOH applied to WIP Actual Budgeted Standard x Standard Fixed OH Fixed OH hours allowed FOH rate 52000 10 600000 620000 520000 (62000*10) 20000 100000 Favorable Unfavorable Fixed overhead Budget variance = Actual FOH - Budgeted FOH = 600000 - 620000 = 20000 Favorable Fixed overhead volume variance = Applied FOH - Budgeted FOH = 720000 - 620000 = 100000 Unfavorable

Answered: Calgary Paper Company produces paper…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Calgary Paper Company produces paper for photocopiers. The company has developed standard overhead rates based on a monthly capacity of 62,000 direct-labor hours as follows:


Standard costs per unit (one box of paper):
Variable overhead (2 direct-labor hours @ $4.5 per hour)	$	9
Fixed overhead (2 direct-labor hours @ $10 per hour)		20
Total	$	29

During April, 31,000 units were scheduled for production; however, only 26,000 units were actually produced. The following data relate to April.

Actual direct-labor cost incurred was $848,000 for 53,000 actual hours of work.
Actual overhead incurred totaled $843,800, of which $243,800 was variable and $600,000 was fixed.

Required:
Prepare two exhibits similar to Exhibit 11-6 and Exhibit 11-8 in the chapter, which show the following variances. State whether each variance is favorable or unfavorable, where appropriate.
1. Variable-overhead spending variance.
2. Variable-overhead efficiency variance.
3. Fixed-overhead budget variance.
4. Fixed-overhead volume variance.

Expert Solution