Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 92

Variable and fixed overhead variances—various issues Presented here are the original overhead budget and the actual costs incurred during July for Rembrant, Inc. Rembrant’s managers relate overhead to direct labor hours for planning, control, and product costing purposes. The original budget is based on budgeted production of 30,000 units in 6,000 standard direct labor hours. Actual production of 32,400 units required 6,750 actual direct labor hours.

	Original Budget	Actual Costs
Variable overhead	$45,000	$50,700
Fixed overhead	54,000	56,400

Required:

a. Calculate the flexed budget allowances for variable and fixed overhead for July.

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b. Calculate the direct labor efficiency variance for July expressed in terms of direct labor hours.

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c. Calculate the predetermined overhead application rate for both variable and fixed overhead for July.

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d. Calculate the fixed and variable overhead applied to production during July if overhead is applied on the basis of standard hours allowed for actual production achieved.

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e. Calculate the fixed overhead budget and volume variances for July.

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f. Calculate the over- or underapplied fixed overhead for July.

Step 1 of 16

Fixed and variable overhead variances

Variable overhead variances : It is the variance between the budgeted or applied variable overhead costs and the actual variable overhead incurred towards production activity.

Fixed overhead variance : It is the variance between the budgeted or applied fixed overhead costs and the actual fixed overhead incurred towards production activity.