11

Class Activity 2

Brett Lee Ltd applies variable factory overhead on the basis of direct labor hours (DLHs). The company has the following variable factory overhead standard to manufacture one cricket ball:

0.5 standard hours of labour per cricket ball at a variable overhead rate of $10.00 per DLH.

Last month 55 DLHs were worked to make 100 Cricket balls, and $539 was spent on variable factory overhead.

Calculate the variable overhead spending variance and variable overhead efficiency variance.

Class Activity 3

In this example, what did the variances actually mean?

Actual DHL Actual DHL Standard DHL X X X Actual Rate Standard Rate Standard Rate 55 hours 55 hours (0.5 hrs x 100 balls = 50 hours) X X X $9.80 per hour* $10 per hour $10 per hour $539 $550 $500 Spending variance Efficiency variance $11 favourable $50 unfavorableActual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied $20 (given) X 21,000* $410,000 $450,000 $420,000 Fixed OH exp variance Fixed OH Volume variance $40,000 favourable $30,000 Unfavourable * 0.75 hrs p.u. x 28,000 units = 21,000 st. hours