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

Short 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-by-step solution

Computation of variable overhead cost variance

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

Computation of variable overhead efficiency variance

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

Computation of total variable overhead variance

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