World Company expects to operate at 80% of its productive capacity of 56,250 units per month. At this planned level, the company expects to use 27,900 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.620 direct labor hour per unit. At the 80% capacity level, the total budgeted cost includes $69,750 fixed overhead cost and $320,850 variable overhead cost. In the current month, the company incurred $361,000 actual overhead and 24,900 actual labor hours while producing 40,000 units. (1) Compute the overhead volume variance. Classify each as favorable or unfavorable. (2) Compute the overhead controllable variance. Classify each as favorable or unfavorable.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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World Company expects to operate at 80% of its productive capacity of 56,250 units per month. At this planned level, the company expects to use 27,900 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.620 direct labor hour per unit. At the 80% capacity level, the total budgeted cost includes $69,750 fixed overhead cost and $320,850 variable overhead cost. In the current month, the company incurred $361,000 actual overhead and 24,900 actual labor hours while producing 40,000 units.
(1) Compute the overhead volume variance. Classify each as favorable or unfavorable.
(2) Compute the overhead controllable variance. Classify each as favorable or unfavorable.
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