Overhead Volume Variance
In October, Sandhill Company reports 18,100 actual direct labor hours, and it incurs $153,300 of manufacturing overhead costs.
Standard hours allowed for the work done is 21,900 hours. The predetermined overhead rate is $7.10 per direct labor hour. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $5.04 variable per direct labor hour and $51,500 fixed.
Compute the overhead volume variance. Normal capacity was 25,000 direct labor hours.
Sample Solution
Overhead Volume Variance = (Actual Hours - Standard Hours) × Predetermined Rate
Overhead Volume Variance = (Actual Hours - Standard Hours) × Predetermined Rate
= (18,100 - 21,900) × $7.10
= -$21,070 U (Under Applied Overhead)
Fixed Manufacturing Overhead Budget Variance = Actual Fixed Manufacturing Overhead Cost - Budgeted Fixed Manufacturing Overhead Cost
= $153,300 - $51,500
= $101,800 F (Favorably Applied Overhead)
Variable Manufacturing Overhead Spending Variance = Actual Variable Manufacturing Overhead Cost – Standard Variable Manufacturing Overhead Cost
Standard Variable Manufacturing Overhead Cost = Standard Hours * Variable Rate Per Direct Labor Hour
= 21,900 * 5.04
= 110,896 (* Answer in dollars *)
Answer: $110,896 F