Overhead Variance

Exercises

PROBLEM 1
Sorsogon Corporation’s overhead analysis reveals the following data:

Number of units actually produced 85,000 units

Efficiency variance – variable P30,000 unfavorable
Spending variance – variable 60,000 favorable
Budget variance – Fixed 80,000 unfavorable
Volume variance – Fixed 100,000 favorable
Total Actual variable overhead P2,520,000
Total Actual fixed overhead 1,680,000
Standard Machine Hours per unit produced 5 hours

Required:
(1) How much was the total overhead applied during the period?
Budgeted FOH 1,600,000
Overapplied FOH (Favorable volume variance) 100,000
APPLIED FOH 1,700,000

(2) What is the standard variable overhead rate per hour?

Standard Variable Overhead cost 2,550,000
Divide by: standard hours @ACTUAL level of production 425,000
(85,000 units x 5 hr/unit)
VOH rate / hr. 6

(3) What is the standard fixed overhead rate per hour?

APPLIED FOH 1,700,000
Divide by: standard hours @ ACTUAL level of production 425,000
FOH rate/ hr. 4

(4) How many machine hours were actually used during the period?
Variable Overhead Cost at Flexible Budget 2,580,000
Divide by: VOH rate/hr 6
Actual machine hours used in production 430,000

(5) What is the budgeted production for the period?

Budgeted Total FOH 1,600,000
Divide by: FOH rate/hr. 4
Budgeted Hours of production 400,000
Divide by: Hours per unit 5
Budgeted UNITS of production 80,000
OR
Volume variance (favorable) 100,000
Divide by: OH rate 4
Excess hours over budgeted hours 25,000
Divide by: hours per unit 5
Excess units produced over budget 5,000

Actual units produced 85,000

Excess units produced over budget (5,000)
Budgeted UNITS of production 80,000

GUIDE to ANALYZE PROBLEM 1

Variable Overhead Cost

STANDARD FLEXIBLE BUDGET ACTUAL
SH SR AH SR AH AR

2,550,000 2,580,000 2,520,000

(30,000) 60,000

Efficiency variance Price (Rate) Variance

Fixed Overhead Cost

APPLIED FLEXIBLE BUDGET ACTUAL
Standard Hours @
ACTUAL UNITS of NORMAL CAPACITY
PRODUCTION x
x FOH rate
FOH Rate

1,700,000 1,600,000 1,680,000

100,000 (80,000)

VOLUME Variance Price variance

(BUDGET Variance)
PROBLEM 2
Bicol Corporation’s predetermined overhead rate is P20 per machine hour of which 60% is variable. The
standard machine hour per unit produced is 0.50 hours while the company’s budgeted production at the
beginning of the year is 500,000 units. The following variances relating to overheads were computed at
the end of the period recently ended:

Efficiency variance – variable P114,000 unfavorable

Spending variance – variable 236,000 unfavorable
Budget variance – Fixed 100,000 unfavorable
Volume variance - fixed 100,000 unfavorable

Required:
(1) How many units were produced during the period?
Volume variance (unfavorable) (100,000)
Divide by: OH rate/hr. 8
Underproduction in hours (12,500)
Divide by: hours per unit 0.5
Underproduction in UNITS (25,000)

Budgeted units of production 500,000

Underproduction in units (25,000)
ACTUAL UNITS PRODUCED 475,000

(2) How much is the actual variable overhead incurred?

Actual units produced 475,000
X hours/unit 0.50
Standard hours @ ACTUAL level of 237,500
production
X VOH rate/hr. 12
TOTAL Standard Variable cost 2,850,000
Efficiency variance – unfavorable 114,000
Spending variance – unfavorable 236,000
ACTUAL TOTAL VOH 3,200,000

(3) How many machine hours were actually utilized during the period?
Standard Total Variable Cost 2,850,000
Efficiency variance – unfavorable 114,000
Standard VOH @ ACTUAL level of production 2,964,000
Divide by: VOH rate/hr. 12
ACTUAL hours of production 247,000

(4) How much is the actual fixed factory overhead?

Applied FOH 1,900,000
Volume variance – unfavorable 100,000
Budgeted FOH 2,000,000
Budget Variance – Unfavorable 1,000,000
 ACTUAL FOH 2,100,000

GUIDE to ANALYZE PROBLEM 1

Variable Overhead Cost

STANDARD FLEXIBLE BUDGET ACTUAL
SH SR AH SR AH AR
12 12
2,850,000 2,964,000 3,200,000

(114,000) (236,000)

Efficiency variance Price (Rate) Variance

Fixed Overhead Cost

APPLIED FLEXIBLE BUDGET ACTUAL
Standard Hours @
ACTUAL UNITS of NORMAL CAPACITY
PRODUCTION x
x FOH rate
FOH Rate

1,900,000 2,000,000 2,100,000

(100,000) (100,000)

VOLUME Variance Price variance

(BUDGET Variance)
(a) VOH rate = 12/hr.
(b) FOH rate = 8/hr
(c) Budgeted Hours = 250,000 hours