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Overhead and variances

Standard cost system-overhead variances
Assume the following data for John Company's August operations.

Standard overhead per direct labor hour based on
normal monthly capacity of 30,000 hours:
Fixed( $270,000/30,000 hours) $9
Variable ($660,000/30,000 hours) 22 $31

Direct labor hours actually worked in August $28,000 hours
Actual overhead cost incurred ( including $270,000
fixed costs) $824,000

(a) Compute the amount of overhead applied to Work-in-Process during August. $_______________

(b) Compute the total manufacturing overhead budgeted based on hours worked during August. $_______________

(c) Compute the overhead spending variance for August. Indicate whether favorable (F) or unfavorable (U). $_______________

(d) Compute the overhead volume variance for August. Indicate whether favorable (F) or unfavorable (U). $_______________

So far I think I have found the answer to C but I am stuck on how to begin to calculate the other answers.


Overhead Spending variance:
Fixed $270,000
Variable 660,000
Total Overhead $930,000
Less Actual Overhead 824,000
Overhead Spending variance $106,000

Solution Preview

(a) Overhead applied = Predetermined overhead rate X Actual direct labor hours
Predetermined overhead rate = $31 per direct labor hour
Actual direct labor hours = 28,000
Overhead applied = 31 X 28,000 = $868,000

(b) The budgeted ...

Solution Summary

The solution explains how to calculate applied and budgeted overhead and spending and volume variance