Budgeted overhead for Haft Inc. at normal capacity of 60000 direct labor hours is $3 per hour variable and $2 per hour fixed. In May $310000 of overhead was incurred in working 63000 hours when 64000 standard hours were allowed.
-The overhead controllable variance is
A) $5000 favorable.
B) $2000 favorable.
C) $10000 favorable.
D) $10000 unfavorable.

Question

Budgeted overhead for Haft Inc. at normal capacity of 60000 direct labor hours is $3 per hour variable and $2 per hour fixed. In May $310000 of overhead was incurred in working 63000 hours when 64000 standard hours were allowed. 
-The overhead controllable variance is
A) $5000 favorable.
B) $2000 favorable.
C) $10000 favorable.
D) $10000 unfavorable.

Quizplus · Accepted Answer

The overhead controllable variance is calculated as the difference between the actual overhead costs incurred and the budgeted overhead costs based on the actual hours worked. The budgeted overhead costs for 63,000 hours are calculated as follows: Variable overhead: $3/hour * 63,000 hours = $189,000 Fixed overhead: $2/hour * 63,000 hours = $126,000 Total budgeted overhead = $189,000 + $126,000 = $315,000 Actual overhead incurred = $310,000 Overhead controllable variance = Actual overhead - Budgeted overhead = $310,000 - $315,000 = -$5,000, which is a $5,000 favorable variance. However, the fixed overhead should not vary with the hours worked, so the correct calculation for the fixed overhead should be $2/hour * 60,000 normal capacity hours = $120,000. Therefore, the corrected total budgeted overhead for 63,000 hours is $189,000 (variable) + $120,000 (fixed) = $309,000. The overhead controllable variance is then $310,000 (actual) - $309,000 (budgeted) = $1,000 unfavorable, which is not an option provided. Given the options, the closest correct calculation based on the provided method would be a $2,000 favorable variance, which seems to be a misunderstanding in the calculation process. The explanation provided was based on the standard method of calculating overhead variances, but it appears there was a mistake in interpreting the options based on the fixed overhead calculation error. The correct approach to calculate the overhead controllable variance should not alter the fixed overhead based on actual hours worked since fixed overhead is supposed to remain constant regardless of the level of activity within the relevant range.

Budgeted Overhead for Haft Inc