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E8-17 Calculating factory overhead: two variances

Dakota Manufacturing Inc. normally produces 10,000 units of product A each


month. Each unit requires 4 hours of direct labor, and factory overhead is
applied on a direct labor hour basis. Fixed costs and variable costs in factory
overhead at the normal capacity are $10 and $5 per unit, respectively.
Cost and production data for June follow:
Production for the month.........................................11,000 units
Direct labor hours used ...........................................42,000 hours
Factory overhead incurred for:
Variable costs ...................................................$48,000
Fixed costs ......................................................$103,000
a. Calculate the flexible-budget variance.
Variable cost
(11,000 units * $5 per unit) $55,000
Fixed cost
10,000 units * $10 per unit $100,000
Flexible budget at actual production level $155,000
Actual factory overhead incurred
$48,000+ $103,000 $151,000
flexible-budget variance= $4000
Favorable
b. Calculate the production-volume variance.
Flexible budget at actual production level $155,000
Factory overhead applied
42, 000 hours * 3.75 per hous $157,500
production-volume variance= $2,500
favorable

c.Was the total factory overhead under- or over applied? By what amount?
production-volume variance= $2,500
favorable
flexible-budget variance= $4000
Favorable
Overapplied factory overhead $6,500
E8-16 Calculating factory overhead: two variances
Montana Manufacturing Co. normally produces 10,000 units of product X
each month. Each unit requires 2 hours of direct labor, and factory overhead
is applied on a direct labor hour basis. Fixed costs and variable costs in
factory overhead at the normal capacity are $5 and $3 per unit, respectively.
Cost and production data for May follow
Production for the month.........................................9,000 units
Direct labor hours used ...........................................18,500 hours
Factory overhead incurred for:
Variable costs ...................................................$28,500
Fixed costs ......................................................$52,000a
A. Calculate the flexible-budget variance
Variable cost
(9,000 units * $3 per unit) $27,000
Fixed cost
10,000 units * $5 per unit $50,000
Flexible budget at actual production level $77,000
Actual factory over head incurred
$28,500+ $52,000 $80,500
flexible-budget variance= $3500
unFavorable

c. Calculate the production-volume variance.


Flexible budget at actual production level $77,000
Factory overhead applied
18,000 hours * $4.00 per hous $72,000
production-volume variance= $5,000
unfavorable

d. Was the total factory overhead under- or over applied? By what


amount?
production-volume variance= $5000
unfavorable
flexible-budget variance= $3500
unFavorable
Underapplied factory overhead $8,500