3 Sharp Company manufacturers jeans In June Sharp made 1200

3. Sharp Company manufacturers jeans. In June, Sharp made 1200 pairs o f jeans, but had budgeted he production at 1400 pairs of jeans. The allocation base for overhead costs is direct labor following additional data is available for the month: Variable overhead cost standard Direct labor efficiency standard Actual amount of direct labor hours Actual cost of variable overhead $0.60 per DLH 2.00 DLHr per jean 2,520 DLH $1,51 ixed overhead cost standard Budgeted fixed overhead Actual cost of fixed overhead 50.25 per DLH $700 Calculate the following variances: a. Variable overhead cost variance b. c. d. e. f. Total fixed overhead variance Variable overhead efficiency variance Total variable overhead variance Fixed overhead cost variance Fixed overhead volume variance

Solution

Solution a:

Variable overhead cost variance = (SR - AR) * AH

standard rate of variable overhead = $0.60 per DLH

Actual rate of variable overhead = $1,512/2520 = $0.60 per DLH

Actual direct labor hours = 2520

Variable overhead cost variance = ($0.60 - $0.60)* 2520 = $0

Solution b:

Standard hours for actual production = 1200 * 2 = 2400 hours

Variable overhead efficiency variance = (SH - AH) * SR = (2400 - 2520) * $0.60 = $72 U

Solution c:

Total variable overhead variance = Variable overhead cost variance + Variable overhead efficiency variance

= $0 + $72 U = $72 U

Solution d:

Budgeted fixed overhead = $700

Actual fixed overhead = $750

Fixed overhead cost variance = Budgeted fixed overhead - Actual fixed overhead = $700 - $750 = $50 U

Solution e:

Fixed overhead applied = SH * SR = 2400 * $0.25 = $600

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead variance

= $600 - $700 =$100 U

Solution f:

Total fixed overhead variance = fixed overhead cost variance + Fixed overhead volume variance

= $50 U + $100 U = $150 U