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

volume variance
budgeted (flexible) overhead
standard overhead applied
volume variance

Explanation:

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<reasoning>

Calculate standard overhead rates

\[

$$\begin{aligned} &\text{Standard DLH at } 80\% \text{ capacity} = 53,000 \text{ units} \times 0.5 \text{ DLH/unit} = 26,500 \text{ DLH}\\ &\text{Standard variable overhead rate} = \frac{\$291,500}{26,500 \text{ DLH}} = \$11.00 \text{ per DLH}\\ &\text{Standard fixed overhead rate} = \frac{\$53,000}{26,500 \text{ DLH}} = \$2.00 \text{ per DLH}\\ &\text{Total standard overhead rate} = \$11.00 + \$2.00 = \$13.00 \text{ per DLH} \end{aligned}$$

\]

Compute budgeted fixed overhead and standard overhead applied

\[

$$\begin{aligned} &\text{Budgeted (flexible) fixed overhead} = \$53,000\\ &\text{Standard DLH allowed for actual production} = 48,800 \text{ units} \times 0.5 \text{ DLH/unit} = 24,400 \text{ DLH}\\ &\text{Standard fixed overhead applied} = 24,400 \text{ DLH} \times \$2.00 \text{ per DLH} = \$48,800 \end{aligned}$$

\]

Calculate overhead volume variance

\[

$$\begin{aligned} &\text{Volume variance} = \text{Budgeted fixed overhead} - \text{Standard fixed overhead applied}\\ &\text{Volume variance} = \$53,000 - \$48,800 = \$4,200 \quad \text{(Unfavorable)} \end{aligned}$$

\]
</reasoning>

<answer>

Volume Variance
Standard fixed overhead applied	\$48,800
Volume variance	\$4,200 Unfavorable

</answer>

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Answer:

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<reasoning>

Calculate standard overhead rates

\[

$$\begin{aligned} &\text{Standard DLH at } 80\% \text{ capacity} = 53,000 \text{ units} \times 0.5 \text{ DLH/unit} = 26,500 \text{ DLH}\\ &\text{Standard variable overhead rate} = \frac{\$291,500}{26,500 \text{ DLH}} = \$11.00 \text{ per DLH}\\ &\text{Standard fixed overhead rate} = \frac{\$53,000}{26,500 \text{ DLH}} = \$2.00 \text{ per DLH}\\ &\text{Total standard overhead rate} = \$11.00 + \$2.00 = \$13.00 \text{ per DLH} \end{aligned}$$

\]

Compute budgeted fixed overhead and standard overhead applied

\[

$$\begin{aligned} &\text{Budgeted (flexible) fixed overhead} = \$53,000\\ &\text{Standard DLH allowed for actual production} = 48,800 \text{ units} \times 0.5 \text{ DLH/unit} = 24,400 \text{ DLH}\\ &\text{Standard fixed overhead applied} = 24,400 \text{ DLH} \times \$2.00 \text{ per DLH} = \$48,800 \end{aligned}$$

\]

Calculate overhead volume variance

\[

$$\begin{aligned} &\text{Volume variance} = \text{Budgeted fixed overhead} - \text{Standard fixed overhead applied}\\ &\text{Volume variance} = \$53,000 - \$48,800 = \$4,200 \quad \text{(Unfavorable)} \end{aligned}$$

\]
</reasoning>

<answer>

Volume Variance
Standard fixed overhead applied	\$48,800
Volume variance	\$4,200 Unfavorable

</answer>

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