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Premium, Inc. uses a standard cost system and provides the following information. (Click the icon to view the information.) Premium allocates manufacturing overhead to
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 2024: actual number of units produced, 1,000; actual variable overhead, $2,400; actual fixed overhead, $3,000; actual direct labor hours, 1,500. 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.) VOH cost variance VOH efficiency variance Formula Variance 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.) Variance Formula FOH cost variance FOH volume variance Requirement 2. Explain why the variances are favorable or unfavorable. The variable overhead cost variance is The variable overhead efficiency variance is The fixed overhead cost variance is The fixed overhead volume variance is because the actual cost per direct labor hour was than the standard cost per direct labor hour. because management used direct labor hours than standard and variable overhead is applied (incurred) based on direct labor. because the total fixed overhead cost was than the amount budgeted for total fixed overhead. because total fixed overhead cost allocated to units was than the total budgeted fixed overhead cost. Data table Static budget variable overhead Static budget fixed overhead Static budget direct labor hours Static budget number of units Standard direct labor hours $1,200 $2,400 800 hours 400 units 2 hours per unit Print Done
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