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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307

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BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307
Textbook Problem

Factory overhead cost variances

The following data relate to factory overhead cost for the production of 10,000 computers:

Actual: Variable factory overhead $262,000
  Fixed factory overhead 90,000
Standard: 14,000 hrs. at $25 350,000

If productive capacity of 100% was 15,000 hours and the total factory overhead cost budgeted at the level of 14,000 standard hours was $356,000, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $6.00 per hour.

To determine

Variable factory overhead controllable variances:

The difference between the actual variable overhead costs and the standard overhead for actual production is known as the variable factory overhead controllable variances. The variable factory overhead controllable variance is computed as follows:

Variable factory overheadcontrollable variance}(Actual variable factory overheadStandard variable factory overhead )

Fixed factory overhead volume variances:

Factory overhead volume variances refers to the difference between the budgeted fixed overheads at 100% of normal capacity, and the standard fixed overheads for the actual units produced. The factory overhead volume variances can be calculated as follows:

Fixed factory overheadvolume variance}(Standard hours for 100% ofnormal capacityStandardhours for actual units produced)×(Fixed factory overhead rate)

The variable factory overhead controllable variance.

Explanation

The variable factory overhead controllable variance is $(4,000) and it is a favorablevariance.

Working Notes:

Determine the variable factory overhead controllable variance.

Variable factory overheadcontrollable variance}(Actual variable factory overheadStandard variable factory overhead (2) )=$262,000$266,000=$(4,000) (1)

Determine the standard variable factory overhead.

Standard variablefactory overhead}=[Standard h

To determine

The fixed factory overhead volume variance.

To determine

The total factory overhead cost variance.

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