OVERHEAD VARIANCES

Additional exercises
University Company uses a standard cost system and prepared the following budgeted mounts at normal
capacity for the month of January 2023:
Direct Labor Hours 24,000
Variable factory overhead P 48,000
Fixed factory overhead P 108,000
Total factory overhead per direct labor hour P 6.50
Actual data for January 2023 were as follows:
Direct labor hours worked 22,000
Total factory overhead P 147,000
Standard direct labor hours allowed for capacity attained 21,000
Using the two-way analysis of overhead variances, what is the controllable variances for January 2023?

COV = AO – BOSH
AO = 147,000
BOSH = BFO + (SHxVOR) = 108,000 + (21,000x(6.50-4.50))
= 147,000-150,000
= 3,000 F
The following information is available from the Faith Company:
Actual factory overhead P 15,000
Fixed overhead expenses, actual P 7,200
Fixed overhead expenses, budgeted P 7,000
Actual hours 3,500
Standard hours 3,800
Variable overhead rate per DLH P 2.50
Assuming Faith uses a 3-way analysis of overhead variances, what is the spending variance?

SPV = AO – BOAH
AO = 15,000
BOAH = BFO + (AHxVOR)
= 7,000 + (3,500*2.50) = 15,750
SPV = 15,000-15,750
= 750 F
The following data relate to Tray Co.,’s manufacturing operations:
Standard direct labor hours per unit 3
Actual direct labor hours 24,500
Number of units produced 8,000
Standard variable overhead per standard
direct labor hour P 2.00
Actual variable overhead P 46,000

What is the variable efficiency variance?

VEV = ( AH-SH ) x VOR

AH = 24,500
SH = (8,000*3) = 24,000
VEV = (24,500-24,000) 2
= 1,000 U
Water Control System, Inc. manufactures water pumps and uses a standard cost system. The standard overhead
costs per water pump are based on direct labor hours and are as follows:
Variable Overhead (4 hours at P8 per hour) P 32
Fixed Overhead (4 hours at P5 per hour)
(based on a capacity of 100,000 direct labor hours per month) P 20
Total overhead cost per unit P 52
The following information is available for the month of November:
- 22,000 pumps were produced although 25,000 had been scheduled for production
- 94,000 direct labor hours were worked at a total cost of P 940,000
- The standard direct labor rate is P9 per hour
- The standard direct labor time per unit is 4 hours
- Variable overhead costs were P 740,000
- Fixed overhead costs were P 540,000

What is the fixed overhead spending variance?

What is the variable overhead spending variance?

FSPV = AFO - BFO VSPV = AVO – (AH x VOR)

= 540,000 – 500,000 = 740,000 – (94,000 x 8)
= 40,000 U = 12,000 F
The data below relate to the month of April for Monroe, Inc., which uses a standard
cost system and a two-variance analysis of factory overhead:

Actual direct labor hours used 16,500

Standard direct labor hours allowed  16,250
Actual total factory overhead P53,200
Budgeted fixed factory overhead P12,000
Budgeted activity in hours 16,000
Total overhead application rate per standard direct labor hour P3.25
Variable overhead application rate per standard direct labor hour P2.50

What was Monroe's volume variance for April?

VOV = BOSH – OA or BOSH – (SHxSOR)

BOSH = (BFO+(SHxVOR))
= 12,000 + (16,250x2.50) = 52,625
OA = (16,250 x 3.25) = 52,812.50
VOV = 52,625 – 52,812.50
= P 187.50 F
Forrest Company uses a standard cost system for its production process and applies overhead
based on direct labor hours. The following information is available for August when Forrest
made 4,500 units:

Standard:
DLH per unit 2.50
Variable overhead per DLH P1.75
Fixed overhead per DLH P3.10
Budgeted variable overhead P21,875
Budgeted fixed overhead P38,750
Actual:
Direct labor hours 10,000
Variable overhead P26,250

Refer to Forrest Company. Using the four-variance approach, what is the variable overhead
efficiency variance?
VEV = BOAH – BOSH
BOAH = (BFO+(AHxVOR))
= 38,750 + (10,000*1.75) = 56,250
BOSH = (BFO+(SHxVOR))
= 38,750 + ((4,500*2.50)*1.75) = 58,437.50
VEV = 56,250 – 58,437.50
= P 2,187.50 F
Rainbow Company uses a standard cost system for its production process. Rainbow Company applies
overhead based on direct labor hours. The following information is available for July:
Standard:
Direct labor hours per unit 2.20
Variable overhead per hour P2.50
Fixed overhead per hour
(based on 11,990 DLHs) P3.00
Actual:
Units produced 4,400
Direct labor hours 8,800
Variable overhead P29,950
Fixed overhead P42,300
Refer to Rainbow Company Using the four-variance approach, what is the variable overhead spending
variance?

VSPV = AVO – (AH x VOR)

= 29,950 - ( 8,800 x 2.50 )
= 7,950 U
Paramount Company uses a standard cost system and prepared the following budget at normal
capacity for January:
Direct labor hours 24,000
Variable OH P48,000
Fixed OH P108,000
Total OH per DLH P6.50
Actual data for January were as follows:
Direct labor hours worked 22,000
Total OH P147,000
Standard DLHs allowed for capacity attained 21,000

Using the two-way analysis of overhead variances, what is the controllable variance for January?

COV = AO – BOSH or AO – (BFO+(SHxVOR))

BOSH = 108,000 + (21,000*2) = 150,000
= 147,000 – 150,000
= 3,000 F
The following information is available from the Fitzgerald Company:
Actual OH P15,000
Fixed OH expenses, actual P7,200
Fixed OH expenses, budgeted P7,000
Actual hours 3,500
Standard hours 3,800
Variable OH rate per DLH P2.50

Assuming that Fitzgerald uses a three-way analysis of overhead variances, what is

the overhead spending variance?

SPV = AO – BOAH or AO – (BFO+(AHxVOR))

BOAH = (BFO+(AHxVOR))
= 7,000 + (3,500*2.50) = 15,750
= 15,000 – 15,750
= 750 F
The following information relates to a given department of Hernan Company for the
4th quarter of 2022:
Actual total overhead P 178,500
Budget Fixed Overhead P 110,000
Variable Fixed overhead rate P 0.50/hr
Total overhead application rate P 1.50/hr
Spending Variance P 8,000 U
Volume Variance P 5,000 F

The total overhead variance is divided into three variances – spending, efficiency
and volume/

What were the actual hours worked?

SPV = AO – BOAH or AO – (BFO+(AHxVOR))
SPV = AO - (BFO+(AHxVOR))
8,000 = 178,500 - (110,000 + ( AH x 0.50 ))
8,000 = 178,500 – 110,000 + 0.50AH
8,000 = 68,500 + 0.50AH
-68,500 + 8,000 = 0.50AH
-60,500 = 0.50 AH
121,000 = AH