Hey Everyone,
I have been using this site to help me study for the past few months but this is my first time posting. First I would like to say thanks to all of you for your help and support in getting me through this experience.
I am studying for BEC now and I am having serious trouble with variances and I really feel that Becker is not explaining the MCQ's all that well.
This a question that I just don't understand. If anyone can please break it down for me I would really appreciate it!!
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. $40,000 unfavorable.
b. $70,000 unfavorable.
c. $240,000 unfavorable.
d. $15,000 favorable.
Explanation
Choice “a” is correct. $40,000 unfavorable overhead spending variance:
Actual fixed overhead $540,000
Budgeted fixed overhead =
100,000 DL hrs. x $5/hr = 500,000
Unfavorable variance $ 40,000
Choices “b”, “c”, and “d” are incorrect, based on the above explanation.
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