[YouCanDoIt]

Direct labor hours 12,000
Variable factory overhead $24,000
Fixed factory overhead $54,000
Total factory overhead per direct labor hour $ 6.50
Actual June direct labor hours worked 11,000
Actual June total factory overhead $73,500
Actual June standard direct labor hours
allowed for capacity attained 10,500
Using the two-way analysis of overhead variances, what is the budget (controllable) variance for June?

A. $1,500 favorable
B. $2,500 favorable
C. $4,500 favorable
D. $5,250 unfavorable
You answered C. The correct answer is A.
The budget (controllable) variance is the difference between the actual OH incurred and the bud¬geted OH based on the standard costs for the attained capacity.The actual OH incurred was $73,500.

Total OH is 12,000 DLH hours × $6.50/hr. = $78,000.Variable OH is $78,000 – $54,000 = $24,000 (given) and the variable OH rate is $24,000 / 12,000 DLH hr. = $2/hr.Thus, the total OH for the attained capacity is 10,500 hours × $2/hr. + $54,000 = $75,000.Thus, the actual OH incurred was $1,500 less than the budgeted OH for the capacity attained. Therefore, it is $1,500 favorable.

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I thought Budget controllable variance = Actual FOH used – Budgeted allowed at standard rate

So, why is it wrong to do:
$73,500 (actual)
– (24k + 54k) given as VOH-Factory, FOH-Factory
—————
$4,500 favorable
————–

I appreciate all the help!! I might be completely overlooking something, help!!

AUD - 77
BEC - 79
FAR - 75
REG - 80

Won't know until you try.

FAR: 76
REG: Currently studying
AUD:
BEC:

[Pri93]

I'm having a problem understanding this too. I just can't grasp overhead variances!!! I hope someone helps us here !!!!!

[Pri93]

okay so I have been trying to work this problem out. The 4500 favorable is the total overhead variance you have calculated and this question asks for the budget controllable variance.

First step is that the actual OH is 73500 (given)

Middle step (what Q asks for) is calc this way — breaking down into fixed and variable component, fixed being 54000 and variable being actual hours* standard variable rate which would be 10500*2= 21000. so add 54000 F + 21000 V = 75000

Third step is OH applied which is 12000 *6.5 (predetermined rate) = 7800

Total OH variance is 4500 F
Budgeted controllable is 1500 F
And Volume/capacity variance is 3000 F

Hope this helps???

And can someone confirm if I got it right ( I did this based to Bob's technique I learned from the Hotspot Ninja Videos)

[GoCart]

I used Roger for my CPA exam and his explanation of overhead variances is amazing! Think S – E – V Spending, Efficiency, Volume. Volume is never controllable. So it would be spending and efficiency. So your comparison would be Actual @ Actual vs FBE @ Standard

Actual @ Actual FBE @ Actual FBE @ Standard Standard @ Standard
S E V

Actual @ Actual FBE @ Standard
F 54,000 (given) 54,000 (given)
V 19,500 (73,500 – 54,000) 2(10,500)= 21,000 (This is standard $ per DL hour x Actual hours) Standard $ per hour is calculated by (Variable factory OH $24,000 / DL hours 12,000)

(21,000+54,000) – (54,000+19,500) = 1,500 favorable

Hope this helps! I tried to make is super similar to how I worked these out by drawing it out on the BEC exam!

FAR - 90  2/2019

REG - 83  12/2018

AUD - 84  12/2018

BEC - 92  2/2019

[YouCanDoIt]

@pri93
@gocart

Thank you for the help!

I tried to follow and do the steps. I think it just really got me because I am having hard time making sense of the numbers.

I am going to hope I don't get a weird problem like this on the exam. I found other variance problems a little more straightforward than this one.

AUD - 77
BEC - 79
FAR - 75
REG - 80

Won't know until you try.

FAR: 76
REG: Currently studying
AUD:
BEC:

[Author]

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