Question

Wetherbee tech services (wts) is a chain of computer maintenance technicians for households and small businesses. The following data are available for last year's services: wts recorded 121,000 tech calls last year. It had budgeted 127,000 calls, averaging 90 minutes each. Standard variable labor and support costs per tech call were as follows: direct it specialist services: 90 minutes at $54 per hour, variable support staff, supplies, and overhead: 30 minutes at $24 per hour, fixed overhead costs: annual budget $4,142,000, fixed overhead is applied at the rate of $36.00 per call. Actual tech service call costs: direct it specialist services: 121,000 calls averaging 84 minutes at $56.00 per hour, variable support staff, supplies, and overhead: averaging 40 minutes per call at $22.50 per hour × 121,000 calls, fixed overhead $4,428,000. Required: a. Prepare a cost variance analysis for each variable cost for last year. b. Prepare a fixed overhead cost variance analysis.

Answer 1

A cost variance analysis was conducted for Wetherbee Tech Services comparing budgeted variable and fixed overhead costs to actual costs. Variances in direct IT specialist services, variable support staff.

Step-by-step explanation:

Cost Variance Analysis

Performing a cost variance analysis for Wetherbee Tech Services (WTS) involves comparing the budgeted variable costs to the actual costs incurred for the tech calls. The budgeted costs for direct IT specialist services are calculated at 90 minutes per call at $54 per hour, while the actual costs are 84 minutes at $56 per hour. The variance is found by calculating the difference between the actual costs and the budgeted costs. Similarly, variable support staff costs, supplies, and overhead are budgeted at 30 minutes at $24 per hour, but the actual was 40 minutes at $22.50 per hour. To find the variance of each, we multiply the call minutes by the respective hourly rates and then by the number of calls.

Fixed Overhead Cost Variance Analysis

For the fixed overhead cost variance analysis, the budgeted fixed overhead costs are compared to the actual fixed overhead costs incurred. WTS budgeted $4,142,000 for fixed overhead costs, with a rate applied at $36.00 per call. However, the actual fixed overhead was higher at $4,428,000. The variance is the difference between these two amounts.