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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