Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 37

Comprehensive Cost Variance Analysis

Pueblo Service is a fast-growing chain of oil-change stores. The following data are available for last year’s services:

• Pueblo Service performed 396,000 oil changes last year. It had budgeted 360,000 oil changes, averaging 10 minutes each.

• Standard variable labor and support costs per oil change were as follows:

Direct oil specialist services: 10 minutes at $12 per hour	$2
Variable support staff and overhead: 7.5 minutes at $8 per hour	1

• Fixed overhead costs:

Annual budget

$432,000

• Fixed overhead is applied at the rate of $1.20 per oil change.

• Actual oil change costs:

Direct oil specialist services: 396,000 changes averaging 12 minutes at $13.00 per hour	$1,029,600
Variable support staff and overhead: 0.14 labor-hours at $7.50 per hour × 396,000 changes	415,800
Fixed overhead	500,000

Required

a. Prepare a cost variance analysis for each variable cost for last year.

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b. Prepare a fixed overhead cost variance analysis like the one in Exhibit 16.13.

Step 1 of 5

Variable Cost Overheads are expenses of the type of direct material, direct labor and other variable overhead costs in case of a company. This type of costs tends to be higher depending upon the volume of transactions or production units.