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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
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
\$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
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
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
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
\$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