Jackson Manufacturing planned to produce 20000 units of product and work at the 60000 direct labor hours level of activity for 2016. Manufacturing overhead at this level of activity and the predetermined overhead rate are as follows: $$420,000$7\begin{array}{llc}&&\text {Predetermined }\\&&\text {Overhead Rate per}\\&&\text { Direct Labor Hour}\\\text { Variable manufacturing overhead } & \$ 300,000 & \$ 5 \\\text { Fixed manufacturing overhead } & 120,000 &2\\\text { Total manufacturing overhead }&\$420,000&\$7\end{array}$ At the end of 2016 21000 units were actually produced and 61500 direct labor hours were actually worked. Total actual manufacturing overhead costs were $430000.
Instructions
Using a two-variance analysis of manufacturing overhead calculate the following variances and indicate whether they are favorable or unfavorable:
(a) Overhead controllable variance.
(b) Overhead volume variance.

Question

Jackson Manufacturing planned to produce 20000 units of product and work at the 60000 direct labor hours level of activity for 2016. Manufacturing overhead at this level of activity and the predetermined overhead rate are as follows:

$420,000$7\begin{array}{llc}&&\text {Predetermined }\\&&\text {Overhead Rate per}\\&&\text { Direct Labor Hour}\\\text { Variable manufacturing overhead } & \$ 300,000 & \$ 5 \\\text { Fixed manufacturing overhead } & 120,000 &2\\\text { Total manufacturing overhead }&\$420,000&\$7\end{array}

At the end of 2016 21000 units were actually produced and 61500 direct labor hours were actually worked. Total actual manufacturing overhead costs were $430000.
Instructions
Using a two-variance analysis of manufacturing overhead calculate the following variances and indicate whether they are favorable or unfavorable:
(a) Overhead controllable variance.
(b) Overhead volume variance.

Wesley Warrick · Accepted Answer

Final Answer :  (a) Overhead controllable variance = $5000 favorable.   Overhead budgeted for standard hours allowed   Variable overhead  ( 63 , 000 × $ 5 )   = $ 315 , 000  Fixed overhead = 120 , 000 435 , 000  Actual overhead incurred  430 , 000  Overhead controllable variance $ 5 , 000  favorable    \begin{array}{llr}  	ext {Overhead budgeted for standard hours allowed   }  & \ 	ext { Variable overhead   (63,000 	imes \$ 5)   }  & =\$315,000\ 	ext {  Fixed overhead}  & =120,000\ & 435,000\ 	ext { Actual overhead incurred }  & 430,000\ 	ext {   Overhead controllable variance}  & \$5,000	ext { favorable }\ 	ext {  }  & \\end{array} Overhead budgeted for standard hours allowed   Variable overhead  ( 63 , 000 × $5 )    Fixed overhead  Actual overhead incurred   Overhead controllable variance   ​ = $315 , 000 = 120 , 000 435 , 000 430 , 000 $5 , 000  favorable  ​ (b) Overhead volume variance = $6000 favorable.Overhead volume variance: (Normal hours - Standard hours) × Fixed overhead rate(60000 - 63000) × $2/hr = $6000 favorable

Definitions

Learning Objectives

Learning Objectives

Related questions