Sedona Company set the following standard costs for one unit of its product for this year. Direct material (20 Ibs. @ $2.50 per Ib.) $ 50.00 Direct labor (10 hrs. @ $22.00 per hr.) 220.00 Variable overhead (10 hrs. @ $4.00 per hr.) 40.00 Fixed overhead (10 hrs. @ $1.60 per hr.) 16.00 Total standard cost $ 326.00 The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available. Operating Levels (% of capacity) Flexible Budget 70% 75% 80% Budgeted output (units) 35,000 37,500 40,000 Budgeted labor (standard hours) 350,000 375,000 400,000 Budgeted overhead (dollars) Variable overhead $ 1,400,000 $ 1,500,000 $ 1,600,000 Fixed overhead 600,000 600,000 600,000 Total overhead $ 2,000,000 $ 2,100,000 $ 2,200,000 During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred. Variable overhead costs $ 1,375,000 Fixed overhead costs 628,600 Total overhead costs $ 2,003,600 Exercise 21-18A Computing and interpreting overhead spending, efficiency, and volume variances LO P5 AH = Actual Hours SH = Standard Hours AVR = Actual Variable Rate SVR = Standard Variable Rate 1. Compute the variable overhead spending and efficiency variances. 2. Compute the fixed overhead spending and volume variances and classify each as favorable or unfavorable. 3. Compute the controllable variance.

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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Question

Sedona Company set the following standard costs for one unit of its product for this year.


Direct material (20 Ibs. @ $2.50 per Ib.)	$	50.00
Direct labor (10 hrs. @ $22.00 per hr.)		220.00
Variable overhead (10 hrs. @ $4.00 per hr.)		40.00
Fixed overhead (10 hrs. @ $1.60 per hr.)		16.00
Total standard cost	$	326.00

The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

	Operating Levels (% of capacity)
Flexible Budget		70%		75%		80%
Budgeted output (units)		35,000		37,500		40,000
Budgeted labor (standard hours)		350,000		375,000		400,000
Budgeted overhead (dollars)
Variable overhead	$	1,400,000	$	1,500,000	$	1,600,000
Fixed overhead		600,000		600,000		600,000
Total overhead	$	2,000,000	$	2,100,000	$	2,200,000

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.


Variable overhead costs	$	1,375,000
Fixed overhead costs		628,600
Total overhead costs	$	2,003,600

Exercise 21-18A Computing and interpreting overhead spending, efficiency, and volume variances LO P5

AH = Actual Hours
SH = Standard Hours
AVR = Actual Variable Rate
SVR = Standard Variable Rate

1. Compute the variable overhead spending and efficiency variances.
2. Compute the fixed overhead spending and volume variances and classify each as favorable or unfavorable.
3. Compute the controllable variance.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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