Part 1 Study Unit 7 Review Jim Clemons, CMA

SU 7.6 Overhead Variances Total Overhead Variance consists of four variances. -Total Variable overhead variances = flexible budget variance -Spending variance – difference between actual variable overhead and (budgeted application rate x the actual amount of input) -Variance is favorable if actual production spending < std spending -Efficiency variance – budgeted application rate times the difference between the actual input and the standard input allowed for actual output. -Total Fixed overhead variances -Spending Variances – difference between actual fixed overhead and the amount budgeted. Same as fixed overhead flexible budget variance. The fixed overhead is the same over the relevant range of output. -Production volume variance – (Idle capacity variance) difference between budgeted fixed overhead and the product of the budgeted application rate and the standard input allowed for the actual output.

Problem 7.7 Standard CostsActual Costs Direct Material600,000 units of materials at $2.00 each700,000 units at $1.90 Direct Labor60,000 hours allowed for actual output at $7 per hour 65,000 hours at $7.20 Overhead$8.00 per direct labor hour on normal capacity of 50,000 direct labor hours: $6.00 for variable overhead $2.00 for fixed overhead $396,000 variable $130,000 fixed

Problem 7.7 – Calculate the following: 1) Material Price Variance AQ x (SP-AP) 2) Material Quantity Variance (SQ-AQ) x SP 3) Labor Rate Variance AQ x (SP-AP) 4) Labor Efficiency Variance (SQ-AQ) x SP 5) Variable Overhead Spending Variance (AQxSP)-AC 6) Variable Overhead Efficiency Variance(SQ-AQ)xSP 7) Fixed Overhead Spending Variance – Flexible/Static budget – Actual costs incurred 8) Fixed Overhead Efficiency Variance – (Std hours allowed for actual outputs x Std rate) x Flexible/Static budget