Question
Sedona Company set the following standard costs for one unit of its product for 2017. Direct material (20 Ibs. @ $2.10 per Ib.) $ 42.00
Sedona Company set the following standard costs for one unit of its product for 2017.
Direct material (20 Ibs. @ $2.10 per Ib.) | $ | 42.00 | ||
Direct labor (10 hrs. @ $8.80 per hr.) | 88.00 | |||
Factory variable overhead (10 hrs. @ $4.00 per hr.) | 40.00 | |||
Factory fixed overhead (10 hrs. @ $1.80 per hr.) | 18.00 | |||
Standard cost | $ | 188.00 | ||
The $5.80 ($4.00 + $1.80) total overhead rate per direct labor hour is based on an expected operating level equal to 70% of the factory's capacity of 70,000 units per month. The following monthly flexible budget information is also available.
Operating Levels (% of capacity) | ||||||||||||
Flexible Budget | 65% | 70% | 75% | |||||||||
Budgeted output (units) | 45,500 | 49,000 | 52,500 | |||||||||
Budgeted labor (standard hours) | 455,000 | 490,000 | 525,000 | |||||||||
Budgeted overhead (dollars) | ||||||||||||
Variable overhead | $ | 1,820,000 | $ | 1,960,000 | $ | 2,100,000 | ||||||
Fixed overhead | 882,000 | 882,000 | 882,000 | |||||||||
Total overhead | $ | 2,702,000 | $ | 2,842,000 | $ | 2,982,000 | ||||||
During the current month, the company operated at 65% of capacity, employees worked 435,000 hours, and the following actual overhead costs were incurred.
Variable overhead costs | $ | 1,765,000 | ||
Fixed overhead costs | 943,000 | |||
Total overhead costs | $ | 2,708,000 | ||
AH = Actual Hours SH = Standard Hours AVR = Actual Variable Rate SVR = Standard Variable Rate SFR = Standard Fixed Rate
1. Compute the variable overhead spending and efficiency variances.
2. Compute the fixed overhead spending and volume variances and classify each as favorable or unfavorable. 3. Compute the controllable variance.
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