Question

A company has budgeted to produce 2,750 articles in 22,000 hours with fixed overheads of sh 88,000 and variable overheads of sh 55,000. The company’s production during the period of the budget was 2,000 articles in 21,500 working hours with fixed overheads costing sh 90,000 and variable overheads sh 58,000.

a. Calculate Overhead variance

Answer 1

The overhead variance is calculated by comparing the actual overheads to the budgeted overheads. The company has an unfavorable fixed overhead variance of sh 2,000 and an unfavorable variable overhead variance of sh 3,000, resulting in a total overhead variance of sh 5,000.

Step-by-step explanation:

To calculate the overhead variance, we need to consider both the fixed and variable overheads.

y, the company budgeted for fixed overheads of sh 88,000, but the actual fixed overhead was sh 90,000, resulting in a sh 2,000 (90,000 - 88,000) unfavorable fixed overhead variance.

For variable overheads, the budget was sh 55,000, and the actual cost was sh 58,000, yielding a

sh 3,000 (58,000 - 55,000) unfavorable variable overhead variance.

The total overhead variance is the sum of these two figures, which equates to sh 5,000 (2,000 + 3,000) unfavorable.