Spending and efficiency overhead variances, service sector. Home Cooking (HC)

operates a home meal delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax in orders. HC is currently examining its over¬

head costs for May 2007.

Variable overhead costs for May 2007 were budgeted at $2 per hour of home delivery time. Fixed overhead costs were budgeted at $28,800. The budgeted number of home deliv¬

eries in May 2007 was 9,600. Delivery time, the allocation base for variable and fixed overhead costs, is budgeted to be 0.80 hour per delivery.

Actual results for May 2007 were as follows:

Variable overhead $17,008 Fixed overhead $33,120 Number of home deliveries 8,952 Hours of delivery time 6,714 Customers are charged $12 per delivery. The delivery driver is paid $7 per delivery. HC receives a 10% commission on the meal costs that the restaurants charge the customers who use HC.

Required 1. Compute spending and efficiency variances for HC’s variable and fixed overhead in May 2007. Comment on the results.

2. How might HC manage its variable overhead costs differently from the way it manages its fixed overhead costs?

Excel Application For students who wish to practise their spreadsheet skills, the following is a step-by-step approach to creating an Excel spreadsheet to work this problem.

Step-by Step

(Program your spreadsheet to perform all necessary calculations. Do not “hard-code” any of your variance calculations.)