Question

Thomas Textiles Corporation began November with a budget for 60,000 hours of production in the Weaving Department. The department has a full capacity of 75,000 hours under normal business conditions. The budgeted overhead at the planned volumes at the beginning of November was as follows:

Variable overhead $450,000
Fixed overhead 262,500
Total $712,500
The actual factory overhead was $725,000 for November. The actual fixed factory overhead was as budgeted. During November, the Weaving Department had standard hours at actual production volume of 64,500 hours.
Determine the variable factory overhead controllable variance and the fixed factory overhead volume variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your interim computations to the nearest cent, if required.
a. Variable factory overhead controllable variance: $
b. Fixed factory overhead volume variance: $

Answer 1

The variable factory overhead controllable variance is an unfavorable $241,250, calculated by subtracting the expected variable overhead cost for the actual hours of production from the actual variable overhead. The fixed factory overhead volume variance is a favorable $36,750, determined by comparing the budgeted fixed overhead to the fixed overhead for the actual volume of production.

Step-by-step explanation:

To determine the variable factory overhead controllable variance and the fixed factory overhead volume variance, we can use the following information provided:

Variable overhead cost (per hour) = Budgeted variable overhead / Budgeted hours

Variable overhead cost (per hour) = $450,000 / 60,000 hours

Variable overhead cost (per hour) = $7.50

Therefore, the variable overhead cost for the actual hours of production (64,500 hours) would be calculated as follows:

Variable overhead cost for actual hours = Variable overhead cost (per hour) × Actual hours of production

Variable overhead cost for actual hours = $7.50 × 64,500 hours

Variable overhead cost for actual hours = $483,750

The variable overhead controllable variance is the difference between the actual variable overhead costs and the amount we would expect for the actual level of activity.

Variable overhead controllable variance = Actual variable overhead - Variable overhead cost for actual hours

Variable overhead controllable variance = $725,000 - $483,750

Variable overhead controllable variance = $241,250

Since the actual cost is higher than the expected cost, the variance is unfavorable.

To find the fixed factory overhead volume variance, we look at the difference between the budgeted and actual production volume in terms of fixed overhead cost. The fixed overhead is budgeted based on the full capacity:

Fixed overhead cost per hour = Fixed overhead / Full capacity

Fixed overhead cost per hour = $262,500 / 75,000 hours

Fixed overhead cost per hour = $3.50

The fixed overhead for the actual volume would thus be:

Fixed overhead for actual volume = Fixed overhead cost per hour × Actual hours

Fixed overhead for actual volume = $3.50 × 64,500 hours

Fixed overhead for actual volume = $225,750

Fixed factory overhead volume variance = Budgeted fixed overhead - Fixed overhead for actual volume

Fixed factory overhead volume variance = $262,500 - $225,750

Fixed factory overhead volume variance = $36,750

Since the actual volume is less than budgeted volume, we have a favorable variance here.