The following information was obtained from the records of a manufacturing unit using Standard Costing System:
| Budgeted | Actual | |
| Production per month | 2,500 units | 2,000 units |
| Assume 8 hours/day | ||
| Working days | 25 | 26 |
| Fixed overhead | $50,000 | $45,000 |
| Variable overhead | $15,000 | $15,000 |
Required:
To calculate the following overhead variance.
(a) Variable overhead variance
(b) Fixed overhead variance
Solution:
Working hours available/day = 25 x 8 = 200 hours
Standard time = = 0.08 hr/unit
| Variable overhead absorption rate = | Budgeted variable overhead |
| Planned production in standard hours | |
| = | $15,000 / 200 hours |
| = | $75/hour |
| Fixed overhead absorption rate = | Budgeted fixed overhead |
| Planned production in standard hours | |
| = | $50,000 / 200 hours |
| = | $250/hour |
| (a) (i) Variable overhead cost variance |
= |
SVO – AVO |
| = | 75 x 0.08 x 2,000 – 15,000 | |
| = | 12,000 – 15,000 | |
| = | $3,000 (A) |
| (a) (ii) Variable overhead expenditure variance |
= |
(SVOR – AVOR) x AH |
| = | 75 x 26 x 8 – 5,000 | |
| = | 15,600 – 15,000 | |
| = | $600 (F) |
| (a) (iii) Variable overhead efficiency variance |
= |
(SH – AH) x SVOR |
| = | (2,000 x 0.08 – 208) x 75 | |
| = | $3,600 (A) |
| (b) (i) Fixed overhead cost variance | = | AbFO – AFO |
| = | (250 x 0.08 x 2,000) – 45,000 | |
| = | 40,000 – 45,000 | |
| = | $5,000 (A) |
| (b) (ii) Fixed overhead expenditure variance |
= |
BFO – AFO |
| = | 50,000 – 45,000 | |
| = | $5,000 (F) |
| (b) (iii) Fixed overhead volume variance |
= |
AbFO – BFO |
| = | 250 x (0.08 x 2,000) – 50,000 | |
| = | 40,000 – 50,000 | |
| = | $10,000 (A) |
| (b) (iv) Fixed overhead efficiency variance | =
= |
AbFO – SFO
FOAR x Actual labour hours worked – FOAR x standard hours for actual output |
| = | 250 x 26 x 8 – 250 x 0.08 x 2,000 | |
| = | 12,000 (A) |
| (b) (iv) Fixed overhead capacity variance | =
= |
AbFO – BFO
FOAR x Actual labour hours worked – Budgeted fixed overhead |
| = | 250 x 26 x 8 – 50,000 | |
| = | 52,000 – 50,000 | |
| = | 2,000 (F) |
