Problem One

FIXED OVERHEAD SPENDING AND VOLUME ARIANCES, COLUMNAR AND FORMULA APPROACHES

A company provided the following information:

Standard fixed overhead rate (SFOR) per direct labour hour $7.00

Actual fixed overhead rate (AFOR) per direct labour hour $6.95

Actual direct labour hours worked (AH) 36,100

Actual production in units 12,000

Standard hours allowed for actual units produced (SH) 36,000

Required:

1. Using the columnar approach, calculate the fixed overhead spending and efficiency variances.

2. Using the formula approach, calculate the fixed overhead spending variance.

3. Using the formula approach, calculate the fixed overhead efficiency variance.

4. Calculate the total fixed overhead variance.

ACTIVITY FLEXIBLE BUDGET

Cohlmia Company provided information on the following four overhead activities.

Activity Driver Fixed Cost Variable Rate

Maintenance Machine hours $40,000 $ 2.50

Machining Machine hours 25,000 3.00

Setting up Setups - 2,250

Purchasing Purchase orders 75,000 6.00

Cohlmia has found that the following driver levels are associated with two different levels of production.

Driver 40,000 units 60,000 units

Machine hours 60,000 90,000

Setups 50 70

Purchase orders 10,000 16,000

Required:

Prepare an activity-based flexible budget.

OVERHEAD APPLICATION, FIXED AND VARIABLE OVERHEAD VARIANCES

Tules Company is planning to produce 2,400,000 power drills for the coming year. The company uses direct labour hours to assign overhead to products. Each drill requires 0.5 standard hour of labour for completion. The total budgeted overhead was $2,700,000. The total fixed overhead budgeted for the coming year is $1,320,000. Predetermined overhead rates are calculated using expected production, measured in direct labour hours. Actual results for the year are:

Actual production (units) 2,360,000

Actual direct labour hours 1,190,000

Actual variable overhead $1,410,000

Actual fixed overhead $1,260,000

Required:

1. Compute the applied fixed overhead.

2. Compute the fixed overhead spending and efficiency variances.

3. Compute the applied variable overhead.

4. Compute the variable overhead spending and volume variances.