Question

Zepol Company is planning to produce 600,000 power drills for the coming year. The company uses direct labor hours to assign overhead to products. Each drill requires 0.75 standard hour of labor for completion. The total budgeted overhead was $1,777,500. The total fixed overhead budgeted for the coming year is $832,500. Predetermined overhead rates are calculated using expected production, measured in direct labor hours. Actual results for the year are:

Answer 1

Actual results are missing, so I looked for a similar question and found:

Actual results for the year are: Actual production (units) 594,000 Actual variable overhead $928,000 Actual direct labor hours (AH) 446,000 Actual fixed overhead $835,600

1. Compute the applied fixed overhead

2. Compute the fixed overhead spending and volume variances

1) budgeted labor hours = 600,000 units x 0.75 labors hours per unit = 450,000 labor hours

standard fixed overhead rate = $832,500 / 450,000 labor hours = $1.85 per labor hour

applied fixed overhead = actual labor hours x standard fixed overhead rate = 446,000 x $1.85 = $825,100

2) Fixed overhead volume variance = applied fixed overhead – budgeted fixed overhead = $825,100 - $832,500 = -$7,400 favorable

Fixed overhead spending variance = actual fixed overhead - applied fixed overhead = $835,600 - $825,100 = $10,500 unfavorable

total fixed overhead variance = -$7,400 + $10,500 = $3,100 unfavorable