FACTORY OVERHEAD VARIANCES

TWO VARIANCE METHOD

1)Factory overhead controllable variance formula:
Actual factory overhead 11000
Less Budgeted allowance based on standard hours allowed
Fixed FOH Budgeted – (Given in question) 4500
Variable FOH (standard hours allowed x Standard variable FOH rate) 6750 (11250)
(4500 hrs x 1.50)
Controllable variance – Favorable (250)
2) Factory overhead volume variance:
Budgeted allowance based on standard hours allowed 11250
Less; Factory overhead charged to production) (4500std hrs x 2.4 std rate) (10800)
Volume variance - Unfavorable 450

THREE VARIANCE METHODS

1) Factory overhead spending variance:
Actual factory overhead 11000
Less : Budgeted allowance based on actual hours worked
Fixed FOH Budgeted- Given 4500
Variable FOH (Actual hours worked x Standard variable FOH rate) 6600 (11100)
(4400 hrs x 1.5)
Spending Variance – Favorable (100)
2) Factory overhead idle capacity variance formula:
Budgeted allowance based on actual hours worked 11100
Less Applied FOH (Actual hours worked × Standard overhead rate)
(4400 x 2.4) (10560)
Idle capacity variance- Unfavorable 540
3) Factory overhead efficiency variance formula:
Applied FOH 10560
Less (Overhead charged to production) (10800)
Efficiency variance- Fav (240)

FOUR VARIANCE METHOD

1) Spending variance:
Actual factory overhead (11000)
Less ; Budgeted allowance based on actual hours worked 11,100
Spending variance- Favorable (100)
2) Variable efficiency variance formula:
Budgeted allowance based on actual hours worked 11100
Less; Budgeted allowance based on standard hours allowed (11250)
Variable efficiency variance-Favorable (150)
3) Fixed efficiency variance formula:
(Actual hours worked × Fixed overhead rate) (4400 x .9) 3960
Less ;(Standard hours allowed × Fixed overhead rate) (4500 x .9) (4050)
Fixed efficiency variance- Fav (90)
4) Idle Capacity Variance
Normal Capacity x Fixed FOH rate (5000hrs x .9) 4500
Less; Actual Hours worked x Fixed FOH Rate (4400 x.9) (3960)
Idle Capacity Variance- Unfavorable (540)
Q No: 05
Req: No .1 Spending variance unfavorable balance means that actual FOH is greater than standard
allowance. We can find out standard allowance as; Actual FOH – Spending Variance( 178500 -8000=
170500).
The variable FOH in standard allowance is = 170500- 110000= 60500 Variable FOH

Calculation for Actual Hours: Actual hrs x standard variable rate = 60500
Actual hrs = 60500 ÷ 0.5= 121000 hours
Req: No .2
Actual hours worked x standard rate (21000 hrs x 1.5) 181500
Less; Efficiency Variance – unfavorable (9000)
Standard hours x standard rate (overhead charged to production) = 172500
Standard hours = 172500 ÷ 1.5 = 115000 standard hours allowed

Q No: 06 a) Controllable variance

Actual FOH 125000
Less Budgeted allowance based on standard hours allowed
Fixed FOH 40000
Variable
Product A: 8000 units x 2dlh x1.5 24000
Product B: 14000 units x 2dlh x2 56000 80000 (120000)
Controllable variance- unfavorable 5000

b) Volume Variance
Budgeted allowance based on standard hours allowed 120000
Less; Overhead charged to production
Product A : 8000 units x 2 dlh x 2.5 40000
Product B : 14000 units x 2 dlh x 3 84000 (124000)
Volume variance- favorable (4000)
Req no. 2 to compute FOH variances using three and Four variance method, actual direct labor
hours must be know.