Q4TI - Horngren'S Financial And Managerial Accounting

Question

Question: This Try It! continues the previous Try It! for Tipton Company, a shirt manufacturer. During June, Tipton made 1,200 shirts but had budgeted production at 1,400 shirts. Tipton gathered the following additional data: 

Variable overhead cost standard \(0.50 per DLHr 

Direct labor efficiency standard 2.00 DLHr per shirt 

Actual amount of direct labor hours 2,520 DLHr 

Actual cost of variable overhead \)1,512 

Fixed overhead cost standard \(0.25 per DLHr 

Budgeted fixed overhead \)700 

Actual cost of fixed overhead $750 

Calculate the following variances: 

13. Variable overhead cost variance 

14. Variable overhead efficiency variance 

15. Total variable overhead variance 

16. Fixed overhead cost variance 

17. Fixed overhead volume variance 

18. Total fixed overhead variance

Step-by-Step Solution

Answer

Answer

The VOH cost variance is $252 U, the VOH efficiency variance is $60 U and the total VOH variance is $312 U. The FOH cost variance is $50 U, the FOH volume variance is $100 U and the total FOH variance is $150 U.

 

Step 1 Computation of variable overhead cost variance

$$\begin{gathered} \mathbf{A}\mathbf{ctualVariablecostperdirectlaborhour}\mathbf{=}\frac{\mathbf{Actualcostofvariableoverhead}}{\mathbf{Actualamountofdirectlaborhours}} \\ \mathbf{=}\frac{\mathbf{1}\mathbf{,}\mathbf{512}}{\mathbf{2}\mathbf{,}\mathbf{520}} \\ \mathbf{=}\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{60} \\ \mathbf{VariableOverheadCostVariance}\mathbf{=}\left(\mathbf{AC}\mathbf{-}\mathbf{SC}\right)\mathbf{\times }\mathbf{AQ} \\ \mathbf{=}\left(\mathbf{0}\mathbf{.}\mathbf{60}\mathbf{-}\mathbf{0}\mathbf{.}\mathbf{50}\right)\mathbf{\times }\mathbf{2}\mathbf{,}\mathbf{520} \\ \mathbf{=}\mathbf{\$}\mathbf{252}\mathbf{U} \end{gathered}$$

Step 2 Computation of variable overhead efficiency variance

$$\begin{gathered} \mathbf{StandardQuantity}\mathbf{=}\mathbf{DirectLaborEfficiencystandard}\mathbf{\times }\mathbf{Numberofunitsproduced} \\ \mathbf{=}\mathbf{2}\mathbf{\times }\mathbf{1}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{2}\mathbf{,}\mathbf{400} \\ \mathbf{VariableOverheadEfficiencyVariance}\mathbf{=}\left(\mathbf{AQ}\mathbf{-}\mathbf{SQ}\right)\mathbf{\times }\mathbf{SC} \\ \mathbf{=}\left(\mathbf{2}\mathbf{,}\mathbf{520}\mathbf{-}\left(1,200\times 2\right)\right)\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{50} \\ \mathbf{=}\mathbf{\$}\mathbf{60}\mathbf{U} \end{gathered}$$

Step 3 Computation of total variable overhead variance

$$\begin{gathered} \mathbf{Totalvariableoverheadvariance}\mathbf{=}\left(\mathbf{VariableoverheadcostVariance} \\ \mathbf{+}\mathbf{Variableoverheadefficiencyvariance} \\ \right) \\ \mathbf{=}\mathbf{252}\mathbf{U}\mathbf{+}\mathbf{60}\mathbf{U} \\ \mathbf{=}\mathbf{\$}\mathbf{312}\mathbf{U} \end{gathered}$$