examchap9 - Folk Exam Questions Chapter 9 1 The Parco...

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Folk Exam Questions - Chapter 9 1. The Parco Company applies manufacturing overhead costs to products on the basis of direct labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit of product. For August, the company budgeted to work 360,000 direct labor-hours and to incur the following total manufacturing overhead costs: Total variable overhead costs $396,000 Total fixed overhead costs $475,200 During August, the company completed 28,000 units of product, worked 344,000 direct labor-hours, and incurred the following total manufacturing overhead costs: Total variable overhead costs $395,600 Total fixed overhead costs $461,200 The denominator activity in the predetermined overhead rate is 360,000 direct labor- hours. What is the variable overhead spending variance for August? Solution: First, compute the variable overhead (VOH) rate as follows: Budgeted variable overhead costs ÷ budgeted direct labor hours = VOH rate $396,000 ÷ 360,000 direct labor hours = $1.10 per direct labor hour Then, compute the spending variance as follows: Actual VOH incurred – Flexible Budget for VOH Overhead at Actual hours Or Actual VOH incurred – (Actual direct labor hours x VOH rate per direct labor hour) $395,600 – (344,000 hours x $1.10 per hour) = Spending variance $395,600 – $378,400 = $17,200 U (see discussion below)
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