Question

Flick Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20,000 for variable overhead and $30,000 for fixed overhead. The predetermined overhead rate, including both fixed and variable components, is $2.50 per direct labor-hour. The standards call for two direct labor-hours per unit of output produced. Last year, the company produced 11,500 units of product and worked 22,000 direct labor-hours. Actual costs were $22,500 for variable overhead and $31,000 for fixed overhead.

Required:
a. What is the denominator level of activity?
b. What were the standard hours allowed for the output last year?
c. What was the variable overhead spending variance?
d. What was the variable overhead efficiency variance?
e. What was the fixed overhead budget variance?
f. What was the fixed overhead volume variance?

Answer 1

Answer:

Variable rate = 20000 /20000 = $1 per DLH

Fixed rate = 30000/20000 = $1.5 per DLH

Predetermined overhead rate = Variable rate + Fixed rate

Predetermined overhead rate = 2.5

a. Predetermined overhead rate = Estimated total fixed + variable overhead / Estimated level of activity

2.5 = (20,000 + 30,000] / Estimated level of activity

2.5 = 50,000 / Estimated level of activity

Estimated level of activity = 50,000 /2.5

Estimated level of activity = 20,000 Direct labor hours

b. Standard hours = Number of actual output * Standard hours per unit

Standard hours = 11,500 units * 2 hours

Standard hours = 23,000 hours

c. Variable overhead spending variance = Actual variable cost - [Actual hours *SR]

= 22500 - [22000*1]

= 22500 -22000

= 500 U

d. Variable overhead efficiency variance =SR[AH-SH allowed for actual output]

= 1*[22000 - (11500 units * 2)]

= 1*[22000 - 23000]

= 1*1000

= 1000 F

e. Fixed overhead budget variance = Actual fixed cost -budgeted fixed overhead cost

= 31000- 30000

= 1000 U

f. Fixed overhead volume variance = Budgeted fixed overhead cost - Standard fixed overhead cost allowed for actual output

= 30000 - [11500 units* 2SH*1.5 rate]

= 30000 - 34500

= 4500 F