Question

Refer to the information from Exercise 21-17. Compute and interpret the following.

1. Variable overhead spending and efficiency variances.

2. Fixed overhead spending and volume variances.

3. Controllable variance.

Short answer

1. The overall variable overhead spending and efficiency variance is favorable.
2. The fixed overhead spending and volume variance is unfavorable.
3. Controllable variance (Unfavorable)

Step-by-step solution

Meaning of Controllable Variance

Controllable variance refers to the variance used for the factory overhead variances. It denotes the difference between theactual and standard overhead at the standard output level.

Computation of variable overhead spending and efficiency variances 

Actual Overhead	Standard overhead	Applied overhead
$1,375,000	340,000*$4= $1,360,000	350,000*$4= $1,400,000
$15,000 (Unfavorable) [$1,375,000-$1,360,000]		$40,000 (Favorable) [$1,360,000-$1,400,000]
	$25,000 (Favorable)

Computation of fixed overhead spending and volume variances  

Actual Overhead	Standard overhead	Applied overhead
$628,600	$600,000	350,000*$1.60 per hour= $560,000
$28,600 (Unfavorable) [$628,600-$600,000]		$40,000 (Unfavorable) [$600,000-$560,000]
	$68,600 (Unfavorable) [$28,600+$40,000]

Computation of controllable variance  

Particulars	Amounts ($)
Variable overhead spending variance	15,000 (Unfavorable)
Less: Variable overhead efficiency variance	(40,000) Favorable
Add: Fixed overhead spending variance	28,600 (Unfavorable)
Controllable variance	$3,600 (Unfavorable)