Variable overheads are the expenses which are incurred by the company other than direct material cost and direct labour cost. As the name denotes this cost is variable in nature. i.e.,it varies with the volume of production. The difference between the Standard Variable Overhead and the Actual Variable overhead is the Variable Overheads variance. Like Labour Cost Variance, Variable Overhead variance may be caused because of either change in rate per hour or change in number of hours from the standard time. Thus Variable Overhead Cost Variance is the sum of Variable Overhead spending variance and Variable Overhead Efficiency Variance. The following are the formulas for the same: Variable Overhead Cost Variance (VOCV) = Variable Overhead spending variance + Variable Overhead Efficiency Variance Also, Variable Overhead Cost Variance (VOCV) = Standard Variable Overhead Cost(SVOC) – Actual Variable Overhead Cost(AVOC) Variable Overhead spending Variance = Standard Variable overheads for actual hours – Actual Variable overhead cost Variable Overhead Efficiency Variance = Standard Variable overhead cost – Standard variable Overheads for actual hours To Determine: Variable Overhead Spending Variance and Efficiency Variance

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Chapter 23, Problem 19QS

To determine

Concept Introduction:

Variable overheads are the expenses which are incurred by the company other than direct material cost and direct labour cost. As the name denotes this cost is variable in nature. i.e.,it varies with the volume of production.

The difference between the Standard Variable Overhead and the Actual Variable overhead is the Variable Overheads variance.

Like Labour Cost Variance, Variable Overhead variance may be caused because of either change in rate per hour or change in number of hours from the standard time.

Thus Variable Overhead Cost Variance is the sum of Variable Overhead spending variance and Variable Overhead Efficiency Variance.

The following are the formulas for the same:

Variable Overhead Cost Variance (VOCV) = Variable Overhead spending variance + Variable

Overhead Efficiency Variance

Also, Variable Overhead Cost Variance (VOCV) = Standard Variable Overhead Cost(SVOC) – Actual

Variable Overhead Cost(AVOC)

Variable Overhead spending Variance = Standard Variable overheads for actual hours – Actual

Variable overhead cost

Variable Overhead Efficiency Variance = Standard Variable overhead cost – Standard variable

Overheads for actual hours

To Determine: Variable Overhead Spending Variance and Efficiency Variance

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Flow of Production Units Units to be accounted for: Beginning WIP inventory MERCIER MANUFACTURING Fabricating Department Production Cost Report-FIFO Phycol Units Total Costs Prior Department Materials Labor Costs Manufacturing Overhead Units started this period Total units to be accounted for 15,000 75,000 90,000 Units accounted for. Units completed and transfered out: From beginning inventory 15,000 Started and completed currently 45,000 45,000 45,000 45,000 46,000 Units in ending WIP Inventory 30,000 30,000 30,000 18,000 15,000 Total units accounted for 90,000 75,000 75.000 63,000 60,000 Costs to be accounted for. Costs in beginning WIP inventory $ 129,570 $ 75,750 $ 36,000 $ 9,300 $ 8,520 Current period costs Total costs to be accounted for $ 129,570 $ 75,750 214,200 $250,200 $ 64,800 33,480 74,100 $ 42,000 Cost per equivalent unit Prior department costs Materials Labor Manufacturing overhead Costs accounted for. S 4.80 $ 2.80 $ 0.96 S (0.48) Costs assigned to units transformed out:…

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