
Concept explainers
1.
The variable
1.

Explanation of Solution
Given,
The actual hours are 265,000.
The variable overhead costs are $2,200,000.
The standard direct labor hours at 80% capacity is 240,000.
The variable overhead costs at 80% capacity are $1,920,000.
Compute variable overhead spending variance.
The formula to calculate the variable overhead spending variance is,
Substitute 265,000 for actual hours, $8.30 for actual variable rate and $8 for standard variable rate (refer working note).
The variable overhead spending variance is $79,500 (unfavorable).
Calculation of variable overhead efficiency variance:
The formula to calculate the variable overhead efficiency variance is,
Substitute 265,000 for the actual hours, 240,000 for standard hours and $8 for the standard variable rate.
The variable overhead efficiency variance is $200,000 (unfavorable).
Working note:
Calculation of the actual variable rate,
The actual variable rate is $8.30.
Calculation of the standard variable rate,
The standard variable rate is $8.00.
Hence, the variable overhead spending variance and variable overhead efficiency variance is $79,500 (unfavorable), and $200,000 (favorable).
2.
The fixed overhead spending and volume variances.
2.

Explanation of Solution
Given,
The actual overhead is $2,350,000.
The budgeted overhead is $2,400,000.
The standard direct labor hours at 80% capacity is 240,000.
The actual hours are 265,000 hours.
Compute the fixed overhead spending variance.
The formula to calculate the fixed overhead spending variance is,
Substitute $2,350,000 for actual overhead and $2,400,000 for budgeted overhead.
The fixed overhead spending variance is $50,000 (favorable).
Compute fixed overhead volume variance.
The formula to calculate the fixed overhead volume variance is,
Substitute $2,400,000 for the budgeted overhead and $2,650,000 for the applied overhead (refer working note).
The fixed overhead volume variance is $250,000 (favorable).
Working note:
Calculation of the applied overhead,
The applied overhead is $2,650,000.
Hence, the fixed overhead spending variance and fixed overhead volume variance is $50,000 (favorable) and $250,000 (favorable).
3.
The total overhead controllable variance.
3.

Explanation of Solution
Given,
The variable overhead spending variance is $79,500 (unfavorable).
The variable overhead efficiency variance is $200,000 (unfavorable).
The fixed overhead spending variance is $50,000 (favorable).
Compute the overhead controllable variance.
The formula to calculate the overhead controllable variance is,
Substitute $79,500 for variable overhead spending variance, $200,000 for variable overhead efficiency variance and $50,000 for fixed overhead spending variance.
The overhead controllable variance is $229,500 (unfavorable).
Thus, the total overhead controllable variance is $229,500 (unfavorable).
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