Using the separate overhead variance calculations for variable and fixed costs

Using the separate overhead variance calculations for variable and fixed costs

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Using the separate overhead variance calculations for variable and fixed costs, the total overhead  variance is the same $485 unfavorable. The total variable overhead cost variance is $542  unfavorable, indicating actual variable costs were higher than standard variable costs and, therefore,  the overhead is underapplied. The total fixed overhead variance is $57 favorable, indicating overhead  is overapplied, because the actual fixed costs are less than the standard fixed costs. The $650 unfavorable variable cost spending variance is calculated by subtracting the $4,680 flexible  budget for variable overhead (actual direct labor hours times variable overhead per direct labor hour,  or 6,500 × $0.72) from the actual variable overhead of $5,330. It is unfavorable because more was  spent on variable overhead costs per direct labor hour than the $0.72 that was budgeted. Knowing 
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Unformatted text preview: that total variable costs are $5,330 and that 6,500 direct labor hours were incurred, the actual variable overhead costs per direct labor hour rate was $0.82. The $108 favorable efficiency variance is determined by subtracting $4,788 standard overhead (13,300 units by the variable overhead per unit predetermined rate of $0.36) from the flexible budget variable overhead cost of $4,680. It occurred because it took only 6,500 direct labor hours instead of 6,650 (13,300 units × .5 hours per unit) direct labor hours to produce the 13,300 units. The total variable cost variance of $542 is calculated by adding the $650 unfavorable spending variance and the $108 favorable efficiency variance....
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This note was uploaded on 11/16/2011 for the course ACCT 2310 taught by Professor Staff during the Spring '09 term at Texas State.

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