Chapter 13, Problem 13.28E

To determine

(a)

Concept Introduction:

The variable factory overhead controlled variance is difference between the budgeted and actual variable factory overhead.

The fixed factory overhead volume variance is the difference between the standard fixed factory overhead at actual production and at $100\%$ of normal capacity.

The sum of variable overhead controlled variance and fixed factory overhead volume variance is the factory overhead cost variance.

The variable factory overhead controlled variance.

Answer to Problem 13.28E

The variable factory overhead controlled variance is $\$16,000$ favorable variance.

Explanation of Solution

In the given case following data is given:

Actual factory overhead cost $=\$1,428,000$

Budgeted variable factory overhead cost $=\$990,000$

Budgeted fixed factory overhead cost $=\$300,000$

Standard hours for $100\%$ of normal capacity $=60,000$ hours

Standard hours for actual production $=52,000$ hours

Budgeted hours $=45,000$ hours

Budgeted variable factory overhead at $100\%$ of normal capacity is:

  $\begin{array}{c}\text{Overhead}=\frac{\text{Budgeted variable factory overhead cost}}{\text{Budgeted hours}}\times \text{Normal productive capacity}\\ \text{=}\frac{\$990,000}{45,000}\times 60,000\\ =\$1,320,000\end{array}$

Now, the calculation of variable overhead rate is as follows:

  $\begin{array}{c}\text{Variable factory overhead rate }=\frac{\text{Budgeted variable factory overhead cost at normal capacity}}{\text{Normal productive hours}}\\ =\frac{\$1,320,000}{60,000}\\ =\$22\end{array}$

Now, calculation of actual variable factory overhead is as follows:

  $\begin{array}{c}\text{Actual Variable factory overhead}=\text{Actual factory overhead}-\text{Actual fixed factory overhead}\\ =\$1,428,000-\$300,000\\ =\$1,128,000\end{array}$

Therefore, calculation of budgeted variable factory overhead is as follows:

  $\begin{array}{c}\text{Budgeted variable factory overhead = Standard hour for actual unit produced}\\ \times \text{ variable factory overhead rate}\\ \text{= }52,000\times \$22\\ =\$1,144,000\end{array}$

  $\begin{array}{c}\text{Variable factory overhead controlled variance = Actual variable factory overhead}\\ -\text{Budgeted variable factory overhead }\\ =\$1,128,000-\$1,144,000\\ =\$16,000\text{ Favourable Variance}\end{array}$

To determine

(b)

Concept Introduction:

The variable factory overhead controlled variance is difference between the budgeted and actual variable factory overhead.

The fixed factory overhead volume variance is the difference between the standard fixed factory overhead at actual production and at $100\%$ of normal capacity.

The variable and fixed factory overhead controlled variance is that variance which does not change with change in volume.

The fixed factory overhead volume variance.

Answer to Problem 13.28E

The fixed factory overhead volume variance is $\$40,000$ unfavorable variance.

Explanation of Solution

In the given case following data is given:

Budgeted fixed factory overhead cost $=\$300,000$

Standard hours for $100\%$ of normal capacity $=60,000$ hours

Standard hours for actual production $=52,000$ hours

Budgeted hours $=45,000$ hours

Calculation of Fixed factory overhead rate is as follows:

  $\begin{array}{c}\text{Fixed factory overhead rate }=\frac{\text{Budgeted fixed factory overhead cost }}{\text{Normal productive hours}}\\ =\frac{\$300,000}{60,000}\\ =\$5\end{array}$

Now, the calculation of fixed factory overhead volume variance is given below:

  $\begin{array}{c}\text{Fixed factory overhead volume variance}=\left(\begin{array}{l}\text{Standard hours for 100\% of normal capacity}\\ -\text{Standard hours for actual production}\end{array}\right)\times \text{Fixed factory overhead rate}\\ =\left(60,000-52,000\right)\times \$5\\ =\$40,000\text{ Unfavourable Variance}\end{array}$