Using the two - costs (unchanged from original budget). For...

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Using the two-variance approach, the controllable cost variance shows how well management  controls its overhead costs. If a volume variance exists, it means the plant operated at a different  production level than budgeted. For the Bases, Inc., the total overhead variance is $485 unfavorable.  It consists of a $717 unfavorable controllable variance and a $232 favorable volume variance. An  unfavorable controllable variance indicates that overhead costs per direct labor hour were higher  than expected. The variance is calculated by subtracting the $8,413 budgeted overhead from the  $9,130 actual overhead costs. The budgeted overhead is calculated by adding budgeted variable  costs for the actual number of units (think of this as the flexible budget amount) to the budgeted fixed 
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Unformatted text preview: costs (unchanged from original budget). For Bases, Inc., production was 13,300 units and variable costs were $0.72 per direct labor hour. As each unit takes .5 direct labor hours to make, the variable overhead is 13,300 units times .5 hours times $0.72, or $4,788. When added to fixed costs of $3,625, the total budgeted overhead costs are $8,413 for the month. Possible reasons for the unfavorable variance are: indirect materials were purchased from a different supplier with higher costs, or more indirect materials were used due to waste; indirect labor rates were higher due to a change in personnel or higher negotiated raises than budgeted; and/or fixed overhead costs were more than budgeted....
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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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