You have just been hired as the controller of the Eastern Division of Global Manufacturing. Performance records for last year are incomplete, with only the following data available:?Variable overhead rate$3.00per direct labor-hour?Budgeted fixed manufacturing overhead$84,800??Total actual overhead cost$262,500??Fixed overhead budget variance$7,200unfavorable?Variable overhead efficiency variance$15,000unfavorable?Actual direct labor-hours worked55,000direct labor-hours?Denominator activity level53,000direct labor-hours?Standard hours per unit2direct labor-hoursRequired:Prepare a complete analysis of manufacturing overhead for the past year. Indicate actual, standard, and denominator activity levels; variable overhead rate and efficiency variances; and fixed
manufacturing overhead budget and volume variances.
What will be an ideal response?
Budgeted fixed overhead rate = Fixed overhead ÷ Denominator quantity
= $84,800 ÷ 53,000 direct labor-hours
= $1.60 per direct labor-hour
Actual fixed manufacturing overhead = Budgeted fixed manufacturing overhead + Budget variance
= $84,800 + $7,200
= $92,000
Actual variable overhead = Total actual overhead ? Actual fixed manufacturing overhead
= $262,500 ? $92,000
= $170,500
Actual variable overhead rate = Actual variable overhead ÷ Actual hours
= $170,500 ÷ 55,000 direct labor-hours
= $3.10 per direct labor-hour
Rate variance = AH (AR ? SR)
= 55,000 hours ($3.10 per hour ? $3.00 per hour)
= $5,500 U
SH × SR = AH × SR ? overhead efficiency variance
= 55,000 hours × $3.00 per hour ? $15,000
= $150,000
Standard hours allowed = (SH × SR) ÷ SR
= $150,000 ÷ $3.00 per direct labor-hour
= 50,000 direct labor-hours
Actual units produced = Standard hours allowed ÷ Standard hours per unit
= 50,000 hours ÷ 2 hours per unit
= 25,000 units
Volume variance = Budgeted fixed ? (SH × SR)
= $84,800 ? (50,000 hours × $1.60 per hour)
= $84,800 ? $80,000
= $4,800 U
Summary:
| ? | Actual hours | 5,000 | direct labor-hours |
| ? | Standard hours allowed | 50,000 | direct labor-hours |
| ? | Denominator hours | 53,000 | direct labor-hours |
| ? | Rate variance | $ 5,500 | U |
| ? | Efficiency variance | $15,000 | U |
| ? | Budget variance | $ 7,200 | U |
| ? | Volume variance | $ 4,800 | U |
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