Question

In October, Pine Company reports 22,000 actual direct labor hours, and it incurs $198,900 of manufacturing overhead costs. Standard hours allowed for the work done is 22,100 hours. The predetermined overhead rate is $9.25 per direct labor hour. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $7.19 variable per direct labor hour and $51,500 fixed. Compute the overhead volume variance. Normal capacity was 25,000 direct labor hours. Overhead Volume Variance

Answer 1

$5,974 U

Step-by-step explanation:

a). Variable Cost = Standard Hours × Variable Per Direct Labor

= 22,100 hours × $7.19 = $158,899

Predetermined Overhead Charged to Production = Standard Hours × Overhead Rate Per Direct Labor

= 22,100 hours × $9.25 = $204,425

Budgeted Overhead Volume Variance = Variable Cost + Fixed Cost - Predetermined Overhead Charged to Production

=$158,889 + $51,500 - $204,425 = $5,974 U

b). Alternative Method:-

Normal Capacity = 25,000

Standard Hours = 22,100

Fixed Overhead Rate at Normal Capacity = Fixed Cost ÷ Normal Capacity Hours

= $51,500 ÷ 25,000 = $2.06

Overhead Volume Variance = (Normal Capacity - Standard Hours) × Fixed Overhead Rate at Normal Capacity

= (25,000 - 22,100) × 2.06 = 2,900 × $2.06 = $5,974 U