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Topic
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The question is:
Water Control, Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs per water pump are based on direct labor hours and are shown below:
Variable overhead (4 hours at $8/hour) $ 32
Fixed overhead (4 hours at $5*/hour) 20
Total overhead cost per unit $ 52
*Based on a capacity of 100,000 direct labor hours per month.
The following additional 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 $940,000.
•The standard direct labor rate is $9 per hour.
•The standard direct labor time per unit is four hours.
•Variable overhead costs were $740,000.
•Fixed overhead costs were $540,000.
The fixed overhead spending variance for November was:
a. $70,000 unfavorable.
b. $240,000 unfavorable.
c. $40,000 unfavorable.
d. $15,000 favorable.
Explanation
Choice “c” is correct. $40,000 unfavorable overhead spending variance:
Actual fixed overhead $ 540,000
Budgeted fixed overhead (100,000 DL hrs. × $5/hr.) 500,000
Unfavorable variance $ 40,000
Choices “a”, “b”, and “d” are incorrect, based on the above explanation.
Here is my question:
I thought that the spending variance was actual compared to budget amount based on actual? The answer seems to be using both standard components (the 100,000 DLH and the $5/hr rate). Why aren’t we using the 94,000 actual hours? If we used $94,000*5 std rate = 470,000; this leaves a 70,000 variance, which is what I feel like it should be…
Can someone please try and explain this to me so I can finally understand this =(
A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.
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