I need help with variances. I did see a you tube video made my another cpa candidate explaining the calculations that go along with the variable overhead. I have a question about fixed overhead.
Per Becker review material:
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/hr) $32.00
Fixed overhead (4 hours at $5*/hr) $20.00 (*based on 100,000 direct labor hrs per month)
Total overhead cost per unit = $52.00
Additional Information:
22,000 pumps were produced although 25000 had been scheduled
94,000 direct labor hours were worked at a total cost of $940,000
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. $240,000 unfavorable
b. $70,000 unfavorable
c. $15,000 favorable
d. $40,000 unfavorable
I thought the spending variance was calculated by comparing actual Fixed overhead costs to budgeted direct labor per hour X actual direct labor hours. 540,000 vs. 470,000 ($5.00 X 94,000)= $70,000 unfavorable.
The correct answer is “d” 540,000 vs. 500,000 (100,000 DL hrs. x $5/hr) = 40,000 unfavorable
I don't get it. Help please
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