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Variances: Variable and Fixed


Starlight Glassware Company has the following standards and flexible budget data.

Standard variable overhead rate $18.00 per direct labor hour
Standard quantity of direct labor 2 hours per unit of output
Budgeted fixed overhead $300,000
Budgeted output 25,000 units

Actual results for February are as follows:

Actual output 20,000 units
Actual variable overhead $960,000
Actual fixed overhead $291,000
Actual direct labor 50,000 hours

Use the variance formulas to compute the following variances. Indicate whether each variance is favorable or unfavorable, where appropriate.

1. Variable overhead spending variance
2. Variable overhead efficiency variance
3. Fixed overhead budget variance
4. Fixed overhead volume variance

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Solution Preview

Variable overhead spending variance = Actual variable overhead incurred - Flexible budget for variable overhead at actual hours
Spending variance = $960,000 - 50,000 * $18.00 = $960,000 - $900,000 = $60,000 (unfavorable)

Variable overhead efficiency variance = ...

Solution Summary

This solution looks at variances: variable overhead spending/efficiency, fixed overhead budget/volume.