    ### Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

#### Solutions

Chapter
Section ### Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 9, Problem 7CE
Textbook Problem
78 views

## VariancesRefer to Cornerstone Exercise 9.6.Required: 1. Calculate the variable overhead spending variance using the formula approach. (If you compute the actual variable overhead rate, carry your computations out to five significant digits and round the variance to the nearest dollar.) 2. Calculate the variable overhead efficiency variance using the formula approach. 3. Calculate the variable overhead spending variance and variable overhead efficiency variance using the three-pronged graphical approach. 4. What if 26,100 direct labor hours were actually worked in February? What impact would that have had on the variable overhead spending variance? On the variable overhead efficiency variance? Standish Company manufactures consumer products and provided the following information for the month of February: Required: 1. Calculate the fixed overhead spending variance using the formula approach. 2. Calculate the volume variance using the formula approach. 3. Calculate the fixed overhead spending variance and volume variance using the three-pronged graphical approach. 4. What if 129,600 units had actually been produced in February? What impact would that have had on the fixed overhead spending variance? On the volume variance?

1.

To determine

Compute the variable overhead spending variance using formula approach.

### Explanation of Solution

Overhead Variance: The overhead variance is the difference between the real overhead consumed in the production of a product, and the estimated overhead determined in the production of that product.

Favorable Cost Variance: This refers to the variance which is caused when the actual costs are less than the standard cost. The favorable cost variance is the indication that the revenues are greater than what was anticipated.

Unfavorable Cost Variance: This refers to the variance which is caused when the actual costs are more and the standard costs are less. The unfavorable cost variance is the indication that the revenues are lesser than what was anticipated.

Spending variances: It arises when management pays an amount which is different from the standard price for purchasing an item. The variable overhead spending variance measures the total effect of differences in the actual variable overhead rate (AVOR) and the standard variable overhead rate (SVOR).

Compute the variable overhead spending variance using formula approach:

Variable overhead spending variance = [

2.

To determine

Compute the variable overhead efficiency variance using formula approach.

3.

To determine

Compute the variable overhead spending variance and efficiency variance using three-pronged graphical approach.

4.

To determine

Ascertain the effect on the variable overhead spending variance and efficiency variance, if there is a change in actual labor hour (26,100) in February.

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