Chapter 10.A, Problem 8P

To determine

Variable Overhead Cost Variance:

The overhead cost which varies with the level of activity is called a variable overhead cost. At the actual hours of allocation base, the difference between the actual variable overhead cost and budgeted variable overhead cost is called variable overhead cost variance.

Variable Overhead Efficiency Variance:

Variable overhead efficiency variance is the difference between the actual hours of allocations base and the budgeted hours of allocation base allowed at the standard rate.

Fixed overhead budget variance:

The difference between the budgeted fixed overhead cost and the actual fixed overhead cost is called fixed overhead budget variance.

Fixed overhead volume variance:

The difference between the budgeted fixed overhead cost and the applied fixed overhead cost is called fixed overhead volume variance.

Over and Under Applied Fixed overhead cost:

If the actual fixed overhead cost is more than the applied fixed overhead cost, the fixed overhead cost is under applied and if the actual fixed overhead cost is less than the applied fixed overhead cost, the fixed overhead cost is over applied.

1. Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements

2. Prepare a standard cost card for the company’s product; show the details for all manufacturing costs on your standard cost card.

3. Do the following

a. Compute the standard direct labor-hours allowed for the year’s production.

b. Complete the following overhead T-accounts for the year.