The following information relates to Joplin Company for the period just ended:Standard variable overhead rate per hour$1Standard fixed-overhead rate per hour$2Planned monthly activity40,000 machine hoursActual production completed82,000 unitsStandard machine processing timeTwo units per hourActual variable overhead$37,000Actual total overhead$121,000Actual machine hours worked40,500All of the company's overhead is variable or fixed in nature.Required: A. Calculate the spending and efficiency variances for variable overhead.B. Calculate the budget and volume variances for fixed overhead.
What will be an ideal response?
A. Spending variance: $37,000 - (40,500 × $1) = $3,500F
Efficiency variance: (40,500 × $1) - (82,000 × 0.5* × $1) = $500F
*Two units per hour = 0.5 hours per unit
B. Budget variance: ($121,000 - $37,000) - (40,000 × $2) = $4,000U
Volume variance: (40,000 × $2) - (82,000 × 0.5* × $2) = $2,000F**
* Two units per hour = 0.5 hours per unit
**Some accountants choose to label a negative volume variance as "favorable," while others prefer to omit the unfavorable/favorable label altogether.
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