Question

AirPro Corp. reports the following for November. Compute the total overhead variance and controllable overhead variance for November and classify each as favorable or unfavorable.

Actual total factory overhead incurred \(28,175

Standard factory overhead:

Variable overhead \)3.10 per unit produced

Fixed overhead

(\(12,000/12,000 predicted units to be produced) \)1 per unit

Predicted units to produce 12,000 units

Actual units produced 9,800 units

Short answer

The overhead variance isunfavorable.

The controllable overhead variance is favorable.

Step-by-step solution

Meaning of Overhead Variance

The overhead variance denotes the difference between theactual overheads and the overhead applied during a particular period. The overhead variance is applied based on the cost and rates predetermined by the company's management.

Computation of variance

Computation of total overhead variance:

Particulars	Amounts ($)
Total budgeted fixed overhead	12,000
Less: Total fixed overheads applied (9800*1)	9,800
Overhead variance	$2,200 (Unfavorable)

Computation of controllable overhead variance:

Particulars	Variable cost per unit	Total fixed cost	Flexible budget at 12,000 units	Flexible budget at 9,800 units
Variable cost	$3.10		$37,200	$30,380
Fixed cost		$12,000	$12,000	$12,000
Total flexible budget			$49,200	$42,380
Controllable overhead variance:
Total actual overhead cost	$28,175
Total flexible budget amount	$42,380
Controllable overhead variance	$14,205 (Favorable)