9. Premium, Inc. uses a standard cost system and provides the following information. (Click the icon to view the information.) Premium allocates manufacturing overhead to production based on standard direct labor hours. Premium reported the following actual results for 2018: actual number of units produced, 1,000; actual variable overhead, $5,000; actual fixed overhead, $2,800; actual direct labor hours, 1,300. Read the requirements? Requirement 1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances. Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.) Formula Variance (2) VOH cost variance (1) (4) VOH efficiency variance (3) Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance (6) FOH cost variance II (5) (8) FOH volume variance (7) Requirement 2. Explain why the variances are favorable or unfavorable. The variable overhead cost variance is (9) standard cost per direct labor hour. because the actual cost per direct labor hour was (10) than the direct labor hours than The variable overhead efficiency variance is (11) because management used (12). standard and variable overhead is applied (incurred) based on direct labor. The fixed overhead cost variance is (13) budgeted for total fixed overhead. because the total fixed overhead cost was (14) than the amount because total fixed overhead cost allocated to units was (16) - than The fixed overhead volume variance is (15) the total budgeted fixed overhead cost. 1: Data Table Static budget variable overhead Static budget fixed overhead Static budget direct labor hours Static budget number of units Standard direct labor hours $1,500 $2,250 750 hours 375 units 2 hours per unit 2: Requirements 1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances. 2. Explain why the variances are favorable or unfavorable. (2) O OF (1) O O (AQ - SQ) SC O (AC-SC) AQ O Actual FOH - Allocated FOH O (AC-SC) SQ Actual FOH - Budgeted FOH O (AQ - SQ) X AC Bugeted FOH - Allocated FOH
