Identified Question

Question

Example
Addis Manufacturing uses a standard costing system and its fiscal year ends on Hamle 30. Variable
overhead for Hamle 1997 was budgeted at
per machine hour . Budgeted fixed overhead in Hamle
1997 was
Addis has budgeted 200 ,000 units of output for Hamle 1997 . Machine hour is the
allocation base for variable and fixed overhead costs . Machine hour is budgeted to be 0.50 hours per unit
of output. The actual number of units produced for the month is 192,000 with a total machine hours of
. The actual variable and fixed overhead costs for the month are
and

respectively.
Required: Compute
VFOH Efficiency Variance
FFOH Spending Variance
VFOH Spending Variance
Production-Volume Variance
Answer
VFOH Efficiency Variance: The VFOH Efficiency Variance is calculated as the difference between the budgeted variable overhead cost based on standard hours allowed for actual production and the actual variable overhead cost incurred.
Budgeted variable overhead cost = Budgeted variable overhead rate × Budgeted machine hours
= $Br4 × 57,600 = $Br230,400
Actual variable overhead cost incurred = $Br120,000
VFOH Efficiency Variance = Budgeted variable overhead cost - Actual variable overhead cost incurred
= $Br230,400 - $Br120,000 = $Br110,400 (Unfavorable)
VFOH Spending Variance: The VFOH Spending Variance is calculated as the difference between the actual variable overhead cost incurred and the budgeted variable overhead cost based on actual machine hours.
Actual variable overhead cost incurred = $Br120,000
Budgeted variable overhead cost based on actual machine hours = Budgeted variable overhead rate × Actual machine hours
= $Br4 × 57,600 = $Br230,400
VFOH Spending Variance = Actual variable overhead cost incurred - Budgeted variable overhead cost based on actual machine hours
= $Br120,000 - $Br230,400 = $Br110,400 (Unfavorable)
FFOH Spending Variance: The FFOH Spending Variance is calculated as the difference between the actual fixed overhead cost incurred and the budgeted fixed overhead cost based on standard hours allowed for actual production.
Budgeted fixed overhead cost based on standard hours allowed for actual production = Budgeted fixed overhead rate × Budgeted machine hours
= $Br240,000 / 200,000 units × 57,600 machine hours = $Br68,800
Actual fixed overhead cost incurred = $Br256,800
FFOH Spending Variance = Actual fixed overhead cost incurred - Budgeted fixed overhead cost based on standard hours allowed for actual production
= $Br256,800 - $Br68,800 = $Br188,000 (Unfavorable)
Production-Volume Variance: The Production-Volume Variance is calculated as the difference between the budgeted fixed overhead cost based on standard hours allowed for actual production and the budgeted fixed overhead cost based on standard hours allowed for budgeted production.
Budgeted fixed overhead cost based on standard hours allowed for budgeted production = Budgeted fixed overhead rate × Budgeted machine hours
= $Br240,000 / 200,000 units × 100,000 machine hours = $Br120,000
Budgeted fixed overhead cost based on standard hours allowed for actual production = $Br68,800
Production-Volume Variance = Budgeted fixed overhead cost based on standard hours allowed for budgeted production - Budgeted fixed overhead cost based on standard hours allowed for actual production
= $Br120,000 - $Br68,800 = $Br51,200 (Unfavorable)

Answer 1

Based on the information you've provided and the calculations you've done so far, there may be clarifications and recalculations needed on the VFOH Efficiency Variance, VFOH Spending Variance, FFOH Spending Variance, and the Production-Volume Variance. Let's break them down step by step.

Given Information

• Budgeted Variable Overhead Rate: $Br4 per machine hour
• Budgeted Fixed Overhead: $Br240,000
• Budgeted Output: 200,000 units
• Budgeted Machine Hours per Unit: 0.50 hours
• Actual Output: 192,000 units
• Total Actual Machine Hours: Not provided (please provide to proceed)
• Actual Variable Overhead Costs: $Br120,000
• Actual Fixed Overhead Costs: $Br256,800

Calculations to Be Performed

1. Calculate Budgeted Machine Hours for Actual Production: \[ \text{Budgeted Machine Hours} = \text{Actual Output} \times \text{Budgeted Machine Hours per Unit} = 192,000 \text{ units} \times 0.50 \text{ hours/unit} = 96,000 \text{ hours} \]

2. Calculate VFOH Efficiency Variance: \[ \text{Budgeted Variable Overhead Cost} = \text{Budgeted Variable Overhead Rate} \times \text{Budgeted Machine Hours} = Br4 \times 96,000 = Br384,000 \] \[ \text{VFOH Efficiency Variance} = \text{Budgeted Variable Overhead Cost} - \text{Actual Variable Overhead Cost} = Br384,000 - Br120,000 = Br264,000 \text{ (Favorable)} \]

3. Calculate VFOH Spending Variance: \[ \text{Budgeted Variable Overhead Cost based on Actual Machine Hours} = \text{Budgeted Variable Overhead Rate} \times \text{Total Actual Machine Hours} \] (Please provide the actual machine hours to calculate this.)

   Assuming hypothetical machine hours, let’s say it was equal to budgeted hours, then: \[ = Br4 \times 96,000 = Br384,000 \] \[ \text{VFOH Spending Variance} = \text{Actual Variable Overhead Cost} - \text{Budgeted Variable Overhead Cost based on Actual Machine Hours} \] Using $Br384,000 would yield: \[ = Br120,000 - Br384,000 = Br264,000 \text{ (Favorable)} \]

4. Calculate FFOH Spending Variance:

   • Budgeted Fixed Overhead Cost (for actual hours): \[ \text{FFOH Spending Variance} = \text{Actual Fixed Overhead Cost} - \text{Budgeted Fixed Overhead Cost based on Actual Machine Hours} \] Since we use the total fixed budgeted overhead directly without splitting it further into production over heads, we can calculate based only on the total: \[ = Br256,800 - Br240,000 = Br16,800 \text{ (Unfavorable)} \]

5. Calculate Production-Volume Variance: \[ \text{Budgeted Fixed Overhead Cost based on Budgeted Production} = \text{Budgeted Fixed Overhead Rate} \times \text{Total Budgeted Machine Hours} = \left(\frac{Br240,000}{200,000}\right) \times 100,000 = Br120,000 \text{ (Fixed overhead basis)} \] Using previously derived results: \[ = Br240,000 - \text{Budgeted Fixed Overhead based on Actual Production} \] Using $Br240,000: \[ \text{Production-Volume Variance} = \text{Budgeted Fixed Overhead Cost for Budgeted Production} - \text{Budgeted fixed overhead for actually produced hours} \] = $Br120,000 - ($Br240,000 \text{(Fixed production overhead)}) = Br120,000 - Br68,800 (previously calculated) \rightarrow = Br51,200 \text{ (Favorable)} ]

Conclusion of Results:

1. VFOH Efficiency Variance: Br264,000 (Favorable)
2. VFOH Spending Variance: (To calculate once actual machine hours are confirmed)
3. FFOH Spending Variance: Br16,800 (Unfavorable)
4. Production-Volume Variance: Br51,200 (Favorable)

If any specific figures (like total actual machine hours) need adjustments, please provide them for a more accurate computation.