Blumen Textiles Corporation began January with a budget for 90,000 hours of production in the Weaving Department

Blumen Textiles Corporation began January with a budget for 90,000 hours of production in the Weaving Department. The department has a full capacity of 100,000 hours under normal business conditions. The budgeted overhead at the planned volumes at the beginning of April was as follows:

Variable overhead $540,000
Fixed overhead 240,000
Total $780,000

The actual factory overhead was $782,000 for April. The actual fixed factory overhead was as budgeted. During April, the Weaving Department had standard hours at actual production volume of 92,500 hours.

a. Determine the variable factory overhead controllable variance.
b. Determine the fixed factory overhead volume variance.

Answer:



a. Controllable variance: 
Actual variable factory overhead 
($782,000 – $240,000)……………………………  $542,000 
Standard variable factory overhead 
at actual production: 
Standard hours at actual production……… 92,500 
× Variable factory overhead rate
1
…………   $6.00 
Standard variable factory overhead…………   555,000 
Controllable variance—favorable………………  $(13,000) 
1 Variable factory overhead rate: $
540,000 
90,000 hrs. 
$240,000 
2 Fixed factory overhead rate: =   $2.40 per hour 
100,000 hrs. 
3 A
ctual Overhead – Applied Overhead = Total Overhead Variance: 
$782,000 – [($6.00 + $2.40) × 92,500 hrs.] = $5,000 

Alternative Computation of Overhead Variances 
Factory Overhead 
Actual costs 782,000 Applied costs 777,000 * 
Balance (underapplied)     5,000   
Actual 
Factory 
Overhead 
Budgeted Factory 
Overhead for Amount 
Produced 
$782,000 

Variable cost (92,500 × $6.00)………… $555,000 $777,000 * 
Fixed cost…………………………………     240,000 
Total……………………………………… $795,000 
–$13,000 F $18,000 U 
Controllable Volume 
Variance Variance 
* [($6.00 + $2.40) × 92,500]