Albrecht 19.pdf - Marriott School

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EOC | Controlling Cost, Profit, and Investment Centers Chapter 19 981
2. Variable Manufacturing Overhead Variances
The following diagram shows the computation of the variable overhead spending and
efficiency variances:
AH SR
SHA SR
Actual amount spent Actual hours of input Standard hours allowed
Standard rate
for actual output
Standard rate
$83,000 39,600 hours $2.00 $79,200 40,000 hours $2.00 $80,000
Variable overhead spending variance
Variable overhead efficiency variance*
$79,200 – $83,000 = $3,800 U (40,000 hours – 39,600 hours) $2.00 = $800 F
*Be sure to compare this calculation to the labor efficiency variance calculated earlier for Kendra Box Company. Do you see how similar these calculations
are Both are based on the efficiency in labor hour usage.
3. Fixed Manufacturing Overhead Cost Rates
Rate per
Box
Rate per
Hour
Flexible budget at normal capacity:
Boxes produced per month . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Labor hours per month . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Fixed manufacturing overhead costs . . . . . . . . . . . . . . . . . . $125,000 $5 $2.50
4. Fixed Manufacturing Overhead Variances
The following diagram shows the computation of the fixed overhead budget and volume
variances:
SHA SR
Actual amount spent Budgeted amount Standard hours allowed
(used to establish the
for actual output
predetermined allocation rate)
Standard rate
$133,000 $125,000
($125,000 50,000 hours 40,000 hours $2.50 $100,000
$2.50 per hour)
Fixed overhead budget variance
Volume variance**
$125,000 – $133,000 = $8,000 U (40,000 hours – 50,000 hours) $2.50 = $25,000 U
**Alternative calculation: (Actual production – Expected production) Rate per box (20,000 boxes – 25,000 boxes) $5 = $25,000 U.