Knee-Jerk Industries operates a delivery service for local restaurants, delivering call-in, to-go meals for restaurant customers. Variable overhead costs are applied at the budgeted rate of $3 per driving hour. The typical roundtrip takes a driver 45 minutes to complete. Actual results for March follow.Number of roundtrips run: 1,560Hours of delivery time: 1,250Variable overhead cost incurred: $3,450Knee-Jerk uses flexible budgets and variance analysis to monitor performance.Required: A. Prepare a flexible-budget performance report that shows (1) actual variable overhead, (2) the amount of variable overhead that should have been incurred for the number of roundtrips taken, and (3) the variance between these amounts.B. Compute the company's variable-overhead spending and efficiency
variances.C. Compare the variances that you computed in requirements "A" and "B," and comment on your findings.
What will be an ideal response?
A.
| Budgeted variable overhead (1,560 × 45/60 × $3) | $3,510 |
| Less: Actual variable overhead | 3,450 |
| Variance, Favorable | $60 |
B. Spending variance: $3,450 - (1,250 × $3) = $300F
Efficiency variance: (1,250 × $3) - (1,560 × 45/60 × $3) = $240U
C. The spending and efficiency variances comprise the "total" variance as shown in the flexible-budget performance report ($300F + $240U = $60F). That is, total variable overhead was $60 lower than anticipated because of variations in both spending habits and driver efficiency in terms of number of hours driven.
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