Question

manuel company predicts it will operate at 80% of its productive capacity. its overhead allocation base is dlh and its standard amount per allocation base is 0.5 dlh per unit. the company reports the following for this period.

flexible budget at 80% capacity:
production (in units): 53,000
overhead:
variable overhead: $ 291,500
fixed overhead: 53,000
total overhead: $ 344,500

actual results:
production (in units): 48,800
total overhead: $ 344,600

exercise 21-18 (algo) volume and controllable variances lo p4

compute the overhead controllable variance. indicate variance as favorable or unfavorable.
note: indicate the effect of the variance by selecting favorable, unfavorable, or no variance.

Explanation:

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<reasoning>

Calculate standard rates and flexible budget at actual production

\[

$$\begin{aligned} &\text{Standard DLH per unit} = 0.5\text{ DLH}\\ &\text{Budgeted units at 80\% capacity} = 53,000\text{ units}\\ &\text{Budgeted DLH} = 53,000 \times 0.5 = 26,500\text{ DLH}\\ &\text{Variable overhead rate} = \frac{\$291,500}{26,500\text{ DLH}} = \$11.00\text{ per DLH}\\ &\text{Actual production} = 48,800\text{ units}\\ &\text{Standard DLH for actual production} = 48,800 \times 0.5 = 24,400\text{ DLH}\\ &\text{Budgeted variable overhead for actual production} = 24,400\text{ DLH} \times \$11.00 = \$268,400\\ &\text{Budgeted fixed overhead} = \$53,000 \end{aligned}$$

\]

Compute controllable variance

\[

$$\begin{aligned} &\text{Total budgeted overhead for actual production} = \$268,400 + \$53,000 = \$321,400\\ &\text{Actual total overhead} = \$344,600\\ &\text{Controllable variance} = \text{Actual total overhead} - \text{Total budgeted overhead}\\ &\text{Controllable variance} = \$344,600 - \$321,400 = \$23,200\text{ (Unfavorable)} \end{aligned}$$

\]
</reasoning>

<answer>
\[

$$\begin{array}{|l|r|c|} \hline \textbf{Controllable variance} & & \\ \hline \text{Actual total overhead} & \$344,600 & \\ \hline \text{Budgeted total overhead} & \$321,400 & \\ \hline \textbf{Controllable variance} & \$23,200 & \text{Unfavorable} \\ \hline \end{array}$$

\]
</answer>

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Answer:

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<reasoning>

Calculate standard rates and flexible budget at actual production

\[

$$\begin{aligned} &\text{Standard DLH per unit} = 0.5\text{ DLH}\\ &\text{Budgeted units at 80\% capacity} = 53,000\text{ units}\\ &\text{Budgeted DLH} = 53,000 \times 0.5 = 26,500\text{ DLH}\\ &\text{Variable overhead rate} = \frac{\$291,500}{26,500\text{ DLH}} = \$11.00\text{ per DLH}\\ &\text{Actual production} = 48,800\text{ units}\\ &\text{Standard DLH for actual production} = 48,800 \times 0.5 = 24,400\text{ DLH}\\ &\text{Budgeted variable overhead for actual production} = 24,400\text{ DLH} \times \$11.00 = \$268,400\\ &\text{Budgeted fixed overhead} = \$53,000 \end{aligned}$$

\]

Compute controllable variance

\[

$$\begin{aligned} &\text{Total budgeted overhead for actual production} = \$268,400 + \$53,000 = \$321,400\\ &\text{Actual total overhead} = \$344,600\\ &\text{Controllable variance} = \text{Actual total overhead} - \text{Total budgeted overhead}\\ &\text{Controllable variance} = \$344,600 - \$321,400 = \$23,200\text{ (Unfavorable)} \end{aligned}$$

\]
</reasoning>

<answer>
\[

$$\begin{array}{|l|r|c|} \hline \textbf{Controllable variance} & & \\ \hline \text{Actual total overhead} & \$344,600 & \\ \hline \text{Budgeted total overhead} & \$321,400 & \\ \hline \textbf{Controllable variance} & \$23,200 & \text{Unfavorable} \\ \hline \end{array}$$

\]
</answer>

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