Aqua Control Inc. manufactures water pumps and uses a standard cost system.
The
standard factory overhead costs per water pump are based on direct labor hours and are
as follows:
Variable overhead (4 hours at P8/hour) P32
Fixed overhead (4 hours at P5/hour*) 20
Total overhead cost per unit P52
* Based on a capacity of 100,000 direct labor hours per month
The following additional information is available for the month of November:
22,000 pumps were produced although 25,000 had been scheduled for production.
94,000 direct labor hours were worked at a total cost of P940,000.
The standard direct labor rate is P9 per hour.
The standard direct labor time per unit is 4 hours.
Variable overhead costs were P740,000.
Fixed overhead costs were P540,000.
FIXED OVERHEAD SPENDING
VARIANCE
Actual fixed overhead P540,000
Budgeted fixed overhead (100,000 DL hrs. x P5/hr.) 500,000
Unfavorable variance P 40,000
VARIABLE OVERHEAD SPENDING VARIANCE
VOH spending variance = (Actual VOH rate – Standard VOH rate) x Actual Hours
Actual VOH rate = Actual VOH Cost/Actual hrs.
P740,000/94,000 = P7.8723
Standard VOH rate = P8/ DL hr.
Actual Hours = 94,000
(P7.8723 - P8) × 94,000
= P12,000
Favorable
VARIABLE OVERHEAD EFFICIENCY
VARIANCE
VOH efficiency variance = (Actual hours – Standard hours) x Standard VOH Rate
Actual hours = 94,000 DL hrs.
Standard hours = 4 hrs. DL/unit x 22,000 units produced
= 88,000 DL hrs.
Standard VOH Rate = P8/hr
(94,000 - 88,000) × P8
= P48,000
Unfavorable
Variable Overhead Costs
Hours
Rate/ Hr. Amount
Actual 94,000 P
7.8723
- Standard 88,000 P8
- Variances in units – UF (F) 6,000 F (P 0.1277)
UF
x Base P8
VOH spending 94,000
variance = (Actual VOH rate – Standard VOH rate) x Actual
Variances in amount
Hours = (AR – SR) x– AH
UF =
(F)(P 7.8723 – P 8) x 94,000 = P 12,000
P (48,000)
F UF P 12,000 F
Variance description Efficiency
Spending
VOH efficiency variance = (Actual hours – Standard hours) x Standard VOH
Rate = (AH – SH) x SVOR = 94,000 – 88,000) x P 8 = P (48,000) UF
