Overhead variances, service sector

Meals on Wheels (MOW) operate a meal home-delivery service agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time. MOW’S Josh Carter, obtains the following information for May 2009 overhead costs:

If you want to use Excel to solve this exercise, go to the Excel Lab at www.prentiall.com/horngren/cost13e and download the template for Exercise 8-24.

1. Compute spending and efficiency variances for MOW’s variable overhead in May 2009.

2. Compute the spending variance and production-volume variance for MOW’s fixed overhead in May 2009.

3. Comment on MOW’s overhead variances and suggest how Josh Carter might manage MOW’s variable overhead differently from its fixed overhead costs.

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Actual Static Results Budget 10,000 Meals on Wheels (May 2009) 1. 2 Output units (number of deliveries) 3 Hours per delivery 4 Hours of delivery time 5 Variable overhead cost per hour of delivery time 6 Variable overhead costs 7 Fixed overhead costs 8,800 0.70 5,720 $ 1.50 $10,296 $38,600 $35,000