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Variance analysis for standard costing

You have been asked to prepare an analysis of the overhead costs in the order processing department of a mail order company like Lillian Vernon Corporation. As an initial step, you prepare a summary of some events that bear on overhead for the most recent period. the variable overhead flexible-budget variance was $5000 unfavorable. The standard variable-overhead price per order was $.06. The rate of ten orders per hour is regarded as standard productivity per clerk. The total overhead incurred was $203,200, of which $135,500 was fixed. There were no variances for fixed overhead. The variable overhead spending variance was $2,500 favorable.

Find the following:
1) Variable-overhead efficiency variance
2) Actual hours of input
3) Standard hours allowed for output achieved

Solution Preview

Standard Hours of input= 2,03,200-135500+5000+2500=76200/.o6=127000orders/10 orders per hour=12700 hours( 5000 has been allocated less and 2500 cost has incurred less)

Actual Hours of input saved amount 7500, cost per HR. .06X10=6, 7500/6=1250 Hours
Total HOURSOF INPUT IS 12700-1250=11450

Variable Efficiecy Variance 1250/12700=9.8% on positive side


Solution Summary

Computations are provided with comments.