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The following information relates to Watson, Inc.'s overhead costs for the month (Click the loon to view the information) Requirements 1. Compute the overhead variances for the month variable overhead cost variance variable overhead efficiency variance, fed overhead con variance, and fixed overhead volume variance 2. Explain why the variances are favorable or unfavorable Requirement 1. Computo the overhead variances for the month: variable overhead cost variance, variable overhead officiency variance, fixed overhead cost variance, and fixed overhead volume variance. Begin by selecting the formulas needed to compute the variable overhead (VOH) and fixed overhead (FOH) variances, and then compute each variance amount (Achualcost - Standard cost) Actual hours - VOH cost variance (Actual hours - Standard hours allowed) Standard cost - VOH eficiency varance Actual overhead - Budgeted overhead - FOH con variance Budgeted overhead - Allocated overhead - FOH volume variance Data Table Statie budget variable overhead $ 8.000 Static budget fixed overhead $ 3.000 Static budget direct laborhouts 1,000 hours Static budget number of units 5,000 units Watson alocates manufacturing overhead to production based on standard direct labor hours last month, Watson reported the following actual results actual variable overhead, 510,000, acum fixed overhead, 12,830, actual production of 7.200 units M025 direct labor hours per unit. The standard direct laborime is 02 direct labor hours per unit (1,000 static direct labor hours / 5,000 watic units) Print Done hea Help Me Solve This Question Help ab her The following information relates to Watson, Inc.'s overhead costs for the month: Click the icon to view the information.) Requirements 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable, ct Requirement 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. Let's begin by calculating the variable overhead cost (VOH) variance. The variable overhead cost variance which measures the difference between the actual variable overhead (Actual hours x Actual cost) and the standard variable overhead for the actual allocation ab base incurred (standard cost). This variance measures how well the business keeps unit costs of variable overhead inputs within standards. Our cost variance will be the difference between what was actually incurred in variable overhead costs and the budgeted cost de based on the actual hours used Actual VOH nb (Actual hours x Actual cost). Actual hours x Standard cost ) - VOH cost variance 10,600 2,920 6,920 ults Now, let's calculate the efficiency variance. The variable overhead efficiency variance measures the difference in the actual allocation 33 base (actual quantity) and the amount of the allocation base that should have been used (standard quantity). This variance measures how well the business uses its variable overhead inputs. Remember that the efficiency variance is the difference between the standard er cost of the actual hours used and the standard cost of the standard hours allowed. $ an ar Help Me Solve This ab Question Help hel The following information relates to Watson, Inc.'s overhead costs for the month: Click the icon to view the information.) Requirements 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable. od Actual hours Standard hours allowed) Standard cost VOH efficiency variance 2,920 1,825 ) x $ 6.00 6,570 Now, indicate if each variance is favorable or unfavorable. Remember, a cost variance is favorable if the company spent fewer dollars than standard and is unfavorable if the company spent more dollars than standard. An efficiency variance is favorable if the company riab used fewer hours than standard and unfavorable if the company used more hours than standard. VOH cost variance $ 6,920 F ect VOH efficiency variance $ 6,570 U Next, let's compute the fixed overhead (FOH) cost and volume variances. por h We'll begin with the fixed overhead cost (FOH) variance. This fixed overhead cost variance measures the difference between actual fixed sults overhead and budgeted fixed overhead to determine the controllable portion of total fixed overhead variance. This variance measures 2,83 how well the business keeps fixed overhead within standard. Go ahead and complete the calculation now. Actual FOH Budgeted FOH FOH cost variance 2,780 3,900 1,120 amb man per per S $ le $ et fixed Now.compute the fixed overhead volume variance. The fixed overhead volume variance measures the difference between the budgeted fixed overhead and theamount of overhead that should have been allocated to jobs based on the output. This variance measures how fixed overhead is allocated when actual volume is not equal to budgeted volume. Use the formula below to determine the volume variance. Budgeted FOH Allocated FOH Volume variance it variab 3,900 5,475 1,575 Now, indicate if the variance is favorable or unfavorable. Remember, a cost variance is favorable if the company spent fewer dollars than t direct standard and is unfavorable if the company spent more dollars than standard. A fixed overhead volume variance is labeled as favorable if t numbe the company allocated more fixed overhead than was budgeted, and unfavorable if it allocated less fixed overhead than was budgeted. FOH cost variance labor FOH volume variance al results Ces man $ 1,120 F 1,575 F mbe Requirement 2. Explain why the variances are favorable or unfavorable. A cost variance measures how well the business keeps unit costs of material and labor inputs within standards. An efficiency (or quantity) an variance measures how well the business uses its materials or human resources. If a cost or efficiency variance is unfavorable it means that the actual amount spent or used was more than the amount budgeted. The fixed overhead volume variance measures the difference alts between the budgeted fixed overhead and the amount of overhead that should have been allocated to jobs based on the output. If the 331 company has allocated more fixed overhead than was budgeted, it means that the company utilized its resources more efficiently (e.g.. the fixed costs were spread over a higher number of outputs) than was budgeted and the variance is favorable. Now, review each of the variances in our problem and explain why the variances are favorable or unfavorable. ar er Premium, Inc. uses a standard cost system and provides the following information (Click the icon to view the information.) Premium allocates manufacturing overhead to production based on standard direct labor hours. Premium reported the following actual results for 2018: actual number of units produced, 1,000; actual variable overhead, $3,800; actual fixed overhead, $3,500; actual direct labor hours, 1,800. Read the requirements. Requirement 1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances. Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC actual cost; AQ actual quantity, FOH = fixed overhead; SC - standard cost; sa - standard quantity, VOH = variable overhead.) Formula Variance Data Table VOH cost variance VOH officiency variance $ 2,200 Static budget variable overhead Static budget fixed overhead Static budget direct labor hours Static budget number of units Standard direct labor hours $ 3,300 1.100 hours 550 units 2 hours per unit Print Dono Choose from any list or enter any number in the input fields and then click Check Answer Help Me Solve This Question Help Premium, Inc. uses a standard cost system and provides the following information (Click the icon to view the information.) Premium allocates manufacturing overhead to production based on standard direct labor hours. Premium reported the following actual results for 2018: actual number of units produced, 1,000; actual variable overhead, $3,800; actual fixed overhead, $3,500; actual direct labor hours, 1,800. Read the requirements Requirement 1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances. A standard costing system is an accounting system that uses standards for product costs-direct materials, direct labor, and manufacturing overhead. A standard cost system allows management to determine how much a product should cost. Once standards are established, managers can use the standards to assign costs to production. At least once per year, managers will compare the actual production costs to the standard costs to locate variances-cost variances and efficiency variances. The figure below shows the formulas for computing the cost and efficiency variances Click the icon to view the formulas for computing the cost and efficiency variances.) We'll begin by examining the formula needed to compute cost variancos. A cost variance measures how well the lyusiness keeps unit costs of material and labor inputs within standards. As the name suggests, the cost variance is the difference in costs (actual cost per unit - standard cost per unit) of an input, multiplied by the actual quantity used of the input: Cost Variance - (Actual Cost X Actual Quantity) - (Standard Cost Actual Quantity) - (Actual Cost - Standard Cost) * Actual Quantity (AC - SC) X AQ An efficiency variance measures how well the business uses its materials or human resources. The efficiency variance measures the difference in quantities (actual quantity of input used - standard quantity of input allowed for the actual number of units produced), multiplied by the standard cost per unit of the input: Efficiency Variance - (Standard Cost x Actual Quantity) (Standard Cost x Standard Quantity) = (Actual Quantity - Standard Quantity) x Standard Cost - (AQ - 50) > SC We are told in the problem that the actual variable overhead (VOH) amounted to $5,000. To determine the VOH cost variance, then, we can subtract the "SC XAQ" from the actual VOH. Before we make the cost and efficiency computations for VOH, let's identify the amounts needed to complete those calculations. Recall that Quality, lc, allocates manufacturing overhead to production based on standard direct labor hours. We're given the actual quantity at actual cost for variable overhead (=$5,000). We will need to compute Quality's standard cost (SC), which is the standard variable overhead allocation rate. The standard variable overhead allocation rate can be determined by dividing the static budget variable overhead of $2,200 by the static budget direct labor hours of 1,100 hours. The actual quantity of labor is given to us in the information. The standard quantity of direct labor hours that workers should have used to make 1,000 units can be determined by multiplying the number of units manufactured by the labor standard of two direct labor hours per unit (1,000 units x 2 DL.Hr per unit). Identify and/or calculate these amounts and enter them in the table below. (Enter the standard cost amount to the nearest cent.) Variable per hr Overhead Actual quantity at Actual cost (Actual VOH) $ 5,000 Standard cost (SC) $ 2.00 Actual quantity (AQ) 1,900 hours Standard quantity (sa) 2,000 hours Compute the variable overhead cost and efficiency variances using the amounts we have previously determined, and identify whether each variance is favorable (F) or unfavorable (U). The variance is favorable when actual amounts are less than standards and unfavorable when actual amounts exceed standards. Fomula VOH costva variance Actual VOH - (SC XAQ) = $ 5,000 - $ 2.00 1.900 1,200 VOH efficiency variance (AQ - SQ) SC =( 1,900 ) x $ 2.00 = $ 200 FT Variance ) = $ = 2.000 Now let's take a look at the fixed overhead cost and volume variances. Quality will use a slightly different approach to analyze the fixed overhead variances. Remember that fixed costs are not expected to change in total within the relevant range, but they do change per unit when there is a change in volume. To analyze fixed overhead costs, we will need three amounts: Actual fixed overhead costs incurred Budgeted fixed overhead costs Allocated fixed overhead costs Begin by identifying the actual fixed overhead (FOH) costs incurred, the budgeted FOH costs, and the allocated FOH costs. Note that we are given the actual and budgeted FOH in the information given. We must calculate allocated fixed overhead costs by multiplying the standard fixed overhead allocation rate by the standard quantity of direct labor hours, which we previously determined to be 2,000 hours. Fixed Overhead Actual fixed overhead costs incurred $ 3,400 Budgeted fixed overhead costs 3,300 Allocated fixed overhead costs 6,000 Now compute the fixed overhead cost and volume variances using the amounts you identified above. $ $ Now compute the fixed overhead cost and volume variances using the amounts you identified above. Formula Variance FOH cost variance Actual FOH - Budgeted FOH = $ 3,400 $ 3,300 = $ 100 u FOH volume variance Bugeted FOH - Allocated FOH = $ 3,300 $ 6,000 $ 2,700 Ft Requirement 2. Explain why the variances are favorable or unfavorable Cost variances (VOH or FOH) are labeled as favorable if the company spent less and unfavorable if the company spent more. We compare budgeted costs to actual costs to find cost variances. Review each of the cost variances calculated in Requirement 1. Did Quality actually spend more or less than budgeted? Efficiency variances (VOH) compare the actual use of resources used to allocate overhead to production (direct labor hours in our problem) to a standard amount based on actual production. Did Quality use more hours to produce the 1,000 units than would be expected at two direct labor hours per unit? If so, then the efficiency variance is unfavorable. Volume variances (FOH) also compare the use of resources (direct labor in this problem) but they compare a standard amount to a budgeted amount Review your calculation for this variance. Did Quality's standard number of hours (actual number of units produced multiplied by a standard of two direct labor hours per unit) exceed the budgeted hours (static budget)? If so, then the company applied more fixed overhead than was budgeted and the volume variance is labeled as favorable

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