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Variance calculations

Jaser company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $14,0000 for variable overhead and $6,000 for fixed overhead. The predetermined overhead rate, including both fixed and variable components is $4 per direct labor-hour. The standards call for direct labor-hours per unit of output produced. Last year, the company produced 3,000 units of product and worked 6,200 direct labor-hours. Actual costs were $15,500 for variable overhead and $6,300 for fixed overhead.
a- What is the denominator level of activity ?
b- What were the standard hours allowed for the output last year?
c- What was the variable overhead spending variance?
d- What was the variable overhead efficiency variance?
e- What was the fixed overhead budget variance?
f- What was the fixed overhead volume variance?

Solution Preview

(a) Predetermined overhead rate = Estimated Overhead/Denominator level of activity
Denominator level of activity = (14,000+6,000)/4 = 5,000 direct labor hours

(b) Standard hours allowed = 2X3,000 = 6,000 hours

(c) Variable overhead spending variance = actual overhead costs - ...

Solution Summary

The solution explains how to calculate the different variances.

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