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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Factory overhead cost variances
The following data relate to factory overhead cost for the production of 8,000 computers:

If productive capacity of 100% was 10,000 hours and the factory overhead cost budgeted at the level of 8,000 standard hours was $284,000, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $18 per hour.

To determine

Concept Introduction:

The variable factory overhead controlled variance is difference between the budgeted and actual variable factory overhead.

The fixed factory overhead volume variance is the difference between the standard fixed factory overhead at actual production and at 100% of normal capacity.

The variable and fixed factory overhead controlled variance is that variance which does not change with change in volume.

The variable factory overhead controlled variance, fixed factory overhead volume variance, and total factory overhead cost variance.

Explanation

In the given case following data is given:

Actual variable factory overhead cost is $2,250

Actual fixed factory overhead cost is $180,000

Budgeted factory overhead is $248,000

Standard hours for 100% of normal capacity is 10,000 hours

Standard hours for actual production is 8,000 hours

Factory overhead rate is $31

Fixed factory overhead rate is $18

So, calculation of variable overhead rate is as follows:

  Variable factory overhead rate = Factory overhead rate  Fixed factory overhead rate=$31$18=$13

Now, calculation of budgeted variable factory overhead is as follows:

  Budgted Variable factory overhead=Standard hours for actual units producedVariable factory overhead rate=$8,000 hours$13=$104,000

Therefore, calculation of variable factory overhead controlled variance is as follows:

  Variable fa

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