Walker Corporation is a distributor of several products. They use a predetermined variable overhead rate based on direct labor hours. In the most recent month, 90,000 items were shipped to customers using 3,500 direct labor hours. The company incurred a total of $12,600 in variable overhead costs. According to the company's standards, 0.04 direct labor hours are required to fulfill an order for one item and the variable overhead rate is $3.50 per direct labor hour.
a. What is the variable overhead spending variance? Show computations.
b. What is the variable overhead efficiency variance? Show computations.
Please show all work and supply the answer in Word doc, not Excel. I need to learn how to do this for my business.
Solution is provided in a separate word document with necessary workings as desired by you.
Standard cost suggests what the reasonable cost should be under the given set of conditions. Standards are set for material, labour and overhead. Standard can be defined as a benchmark or norm for measuring performance. Standard cost for each element of cost is compared with actual cost and variances are calculated. A variance is the difference between standard prices and quantities and actual prices and quantities.
The expert computes variable overhead spending and efficiency variances.