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Week 7, LO 4 Demo

# Week 7, LO 4 Demo - 2,000 pants Actual variable...

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Week 7: Standard Costs Week 7 Skill Building Demonstration Problem 4 Compute the variable manufacturing overhead spending and efficiency variances. Learning Objective 4 This problem uses the same concept following the formulas from the general models as shown below: Variable Overhead spending variance= AH (AR-SR) Overhead spending Efficiency Variance= SR (AH-SH) Definitions Given: Scratch Pants Corporation has the following direct variable manufacturing overhead labor standard for its durable pants: 1.3 standard hours per pants at \$5.00 per hour Last month, employees actually worked 2,500 hours to make
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Unformatted text preview: 2,000 pants. Actual variable manufacturing overhead for the month was \$11,500. Problem Solution: Actual Rate = \$11,500/2500= \$4.6/hr Standard Rate = 1.3 hrs x 2000 = hours 2600 Spending Variance = 2500(\$4.6-\$5.0) = (\$1000) Favorable Efficiency Variance = \$5(2500-2600) = (\$500) Favorable Significance : Spending variance \$1000 favorable means that variable overhead was less than the standard by .40 cents per hour. Efficiency variance of \$500 variable means that the level of output required less overhead than the amount of overhead than the standards required. Solution...
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