Asked by Maggie Desmond on Jul 20, 2024
Verified
Jackson Manufacturing planned to produce 20000 units of product and work at the 60000 direct labor hours level of activity for 2016. Manufacturing overhead at this level of activity and the predetermined overhead rate are as follows: Predetermined Overhead Rate per Direct Labor Hour Variable manufacturing overhead $300,000$5 Fixed manufacturing overhead 120,0002 Total manufacturing overhead $420,000$7\begin{array}{llc}&&\text {Predetermined }\\&&\text {Overhead Rate per}\\&&\text { Direct Labor Hour}\\\text { Variable manufacturing overhead } & \$ 300,000 & \$ 5 \\\text { Fixed manufacturing overhead } & 120,000 &2\\\text { Total manufacturing overhead }&\$420,000&\$7\end{array} Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead $300,000120,000$420,000Predetermined Overhead Rate per Direct Labor Hour$52$7 At the end of 2016 21000 units were actually produced and 61500 direct labor hours were actually worked. Total actual manufacturing overhead costs were $430000.
Instructions
Using a two-variance analysis of manufacturing overhead calculate the following variances and indicate whether they are favorable or unfavorable:
(a) Overhead controllable variance.
(b) Overhead volume variance.
Overhead Controllable Variance
The difference between the actual and budgeted overhead costs that management has control over, indicative of operational efficiency.
Overhead Volume Variance
The difference between the budgeted manufacturing overhead for the actual production volume and the actual manufacturing overhead incurred.
Two-Variance Analysis
An analytical technique in managerial accounting where variances between expected and actual performance are divided into a volume variance and a rate or efficiency variance.
- Familiarize oneself with the technique for determining factory overhead rates and disparate overhead variances.
- Understand the two-variance approach to analyzing overhead variances and its application.
Verified Answer
(b) Overhead volume variance = $6000 favorable.
Overhead volume variance: (Normal hours - Standard hours) × Fixed overhead rate
(60000 - 63000) × $2/hr = $6000 favorable
Learning Objectives
- Familiarize oneself with the technique for determining factory overhead rates and disparate overhead variances.
- Understand the two-variance approach to analyzing overhead variances and its application.
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