Causes of indirect variances. Heather’s Horse Spa (HHS) is an establishment that boards, 1.Va riable MOH spending trains, and pampers horses while their owners are on vacation. Heather sells her service as an variance, $280 U “enchanting vacation experience for your horse while you vacation elsewhere.” Horse feed, shampoos, ribbons, and other supplies are treated as variable indirect costs. Consequently, there are no direct materials involved in the vacation service. Other overhead costs including indirect labour, amortization on the barn, and advertising are fixed. Both variable and fixed overhead are allocated to each horse guest-week using the weight of the horse in pounds (lbs.) as the basis of allocation.

HHS budgeted amounts for August 2009 were:

REQUIRED 1. Calculate the variable overhead spending and efficiency variances and indicate whether each is favourable (F) or unfavourable (U).
2. Calculate the fixed overhead spending and production-volume variances and indicate whether each is favourable (F) or unfavourable (U).
3. Explain what the variable overhead spending variance means. What factors could have caused it? ]
4. What factors could have caused the variable overhead efficiency variance?
5. If fixed overhead is, in fact, fixed, how could a fixed overhead spending variance occur?
6. What caused the fixed overhead production-volume variance? What does it mean? What are the negative implications, if any, of the production-volume variance?
LO1

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Horse guest-weeks 40 Average weight per horse Variable overhead cost per pound of horse Fixed overhead rate Actual results for August 2009 were: 900 lbs $0.20/lb $1.50/lb Horse guest-weeks Average weight per horse Actual variable overhead Actual fixed overhead 38 950 lbs $7,500 $50,000