Fundamentals of Overhead Variances The Allen Company has a standard absorption costing and flexible budgeting system. The standard costs of its two products differ slightly because the direct materials are $9.00 higher per unit for Product B. The standard costs for Product A include:

Direct materials, 3 pounds @ $20.00 $60.00 Direct labor, 5 hours @ $10.00 50.00 For budgetary-control purposes, production is expressed in standard hours allowed. Denominator activity is expressed as 20,000 standard direct-labor hours per month. Fixed factory overhead is budgeted at $120,000 per month.

4 Under this approach, you will sometimes encounter the terms fixed-overhead budget variance and spending variance being used interchangeably to denote the same variance. Also, our approach provides no efficiency variance for fixed overhead.

The predetermined fixed overhead rate for product costing is not changed from month to month or within months.
All factory overhead is applied to product on the basis of standard direct-labor hours allowed per finished unit. The variable factory overhead rate is $4.00 per direct-labor hour. Compute the standard absorption cost per unit of Product A. What is the variable factory overhead per unit of Product A? Fixed factory overhead per unit?
- Graph

(a) the budgeted variable overhead and

(b) the applied variable overhead from 16,000 to 26,000 hours.
- Graph

(a) the budgeted fixed overhead and

(b) the applied fixed overhead from 16,000 to 26,000 hours.
- Assume that 17,000 standard direct-labor hours are allowed for all output during a given month. Input was 17,900 actual hours used. Actual overhead incurred was: variable $80,000 and fixed, $125,000. What is the variableoverhead flexible-budget variance? Spending and efficiency variances? Fixedoverhead flexible-budget variance? Denominator variance? Show how you obtained your answers.
- Repeat part 4, but assume that 24,000 standard direct-labor hours are allowed for all output during a given month. Input was 22,800 actual hours used.
Actual overhead incurred was: variable, $100,000 and fixed, $116,000. lop5