Sharp Company manufacturers jeans. In June, Sharp made 1200 pairs of jeans, but had budgeted production at 1400 pairs of jeans. The allocation base for overhead costs is direct labor hours. The following additional data is available for the month:

Question

Calculate the following variances:

a. Variable overhead cost variance

b. Variable overhead efficiency variance

c. Total variable overhead variance

d. Fixed overhead cost variance

e. Fixed overhead volume variance

f. Total fixed overhead variance

Answer 1

a. Actual variable cost per direct labor hour = $1,512 / 2,520 DLHr = $0.60 per DLHr
Variable Overhead Cost Variance = (AC - SC) × AQ
= ($0.60 per DLHr ? $0.60 per DLHr) × 2,520 DLHr = 0
b. Variable Overhead Efficiency Variance = (AQ - SQ) × SC
= (2,520 DLHr ? 2,400 DLHr) × $0.60 per DLHr = $72 U
c. Total VOH Variance = $0 + $72 U = $72 U
d. Standard quantity = 2 DLHr per jean × 1,200 jeans = 2,400 DLHr
Fixed Overhead Cost Variance = Actual fixed overhead - Budgeted fixed overhead
= $750 ? $700 = $50 U
e. Overhead allocated to production = Standard overhead allocation rate × Standard quantity of the allocation base allowed for actual output
= $0.25 per DLHr × (2.00 DLHr per jean × 1,200 jeans)
= $0.25 per DLHr × 2,400 DLHr = $600
Fixed overhead Volume Variance = Budgeted fixed overhead - Allocated fixed overhead
= $700 ? $600 = $100 U
f. Total FOH variance = $50 U + $100 U = $150 U