Question

0.5 pts Factory overhead is applied at a rate of $9 per labor hour, of which $6 is variable. The actual variable factory overhead is $32,000. In the current period, 2,500 units are produced at a standard time of 2 labor hours per unit. These units require 5,500 actual labor hours. What is the controllable variance

Answer 1

First, we need to calculate the total factory overhead rate per labor hour:

Total factory overhead rate per labor hour = Fixed factory overhead rate per labor hour + Variable factory overhead rate per labor hour
Total factory overhead rate per labor hour = $9
Variable factory overhead rate per labor hour = $6

Fixed factory overhead rate per labor hour = Total factory overhead rate per labor hour - Variable factory overhead rate per labor hour
Fixed factory overhead rate per labor hour = $9 - $6
Fixed factory overhead rate per labor hour = $3

Next, we can calculate the total factory overhead applied to production by multiplying the total labor hours by the factory overhead rate:

Total factory overhead applied to production = Total labor hours x Total factory overhead rate per labor hour
Total factory overhead applied to production = 5,500 labor hours x $9 per labor hour
Total factory overhead applied to production = $49,500

The total actual variable factory overhead is given as $32,000. Therefore, the total actual fixed factory overhead is:

Total actual fixed factory overhead = Total actual factory overhead - Total actual variable factory overhead
Total actual fixed factory overhead = $49,500 - $32,000
Total actual fixed factory overhead = $17,500

The standard factory overhead rate is $9 per labor hour. For 2,500 units, the standard time allowed is 2 labor hours per unit, so the total standard labor hours allowed is:

Total standard labor hours allowed = Number of units produced x Standard labor hours per unit
Total standard labor hours allowed = 2,500 units x 2 labor hours per unit
Total standard labor hours allowed = 5,000 labor hours

The standard factory overhead applied to production is:

Standard factory overhead = Total standard labor hours allowed x Total factory overhead rate per labor hour
Standard factory overhead = 5,000 labor hours x $9 per labor hour
Standard factory overhead = $45,000

The controllable variance can be calculated as the difference between the actual fixed factory overhead and the standard fixed factory overhead:

Controllable variance = Total actual fixed factory overhead - Total standard fixed factory overhead
Controllable variance = $17,500 - ($3 per labor hour x 5,000 labor hours)
Controllable variance = $17,500 - $15,000
Controllable variance = $2,500

Therefore, the controllable variance is $2,500.