5.5 Review - Variable Manufacturing Overhead Variances in Cost Centers

When direct labor is the best cost driver for variable manufacturing overhead, a favorable direct labor efficiency variance would result in:

A favorable variable manufacturing overhead efficiency variance

The following figures represent 100% capacity for Starr Manufacturing: Units produced 20,000 Direct labor hours expected 12,000 Variable manufacturing overhead costs $36,000 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved. Based on the information above, the manufacturing overhead efficiency variance is:

Standard rate per hour: $36,000 / 12,000 hours = $3 Manufacturing overhead efficiency variance: (6,000 hours - 6,400 hours) x $3 = $1,200 Unfavorable

The following figures represent 100% capacity for Starr Manufacturing: Units produced 20,000 Direct labor hours expected 12,000 Variable manufacturing overhead costs $36,000 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved. Based on the information above, the standard variable manufacturing overhead cost in terms of standard direct labor hours is:

Standard rate per hour: $36,000 / 12,000 hours = $3 Standard variable manufacturing overhead cost: 6,000 hours x $3 = $18,000

The following figures represent 100% capacity for Starr Manufacturing: Units produced 20,000 Direct labor hours expected 12,000 Variable manufacturing overhead costs $36,000 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved. Based on the information above, the standard variable manufacturing overhead cost in terms of actual direct labor hours is:

Standard rate per hour: $36,000 / 12,000 hours = $3 Standard variable manufacturing overhead: 6,400 hours x $3 = $19,200

The following figures represent 100% capacity for Starr Manufacturing: Units produced 20,000 Direct labor hours expected 12,000 Variable manufacturing overhead costs $36,000 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved. Based on the information above, the variable manufacturing overhead applied to Work-in-Process Inventory is:

Standard rate per hour: $36,000 / 12,000 hours = $3 Variable manufacturing overhead applied to WIP: 6,000 x $3 = $18,000

The following figures represent 100% capacity for Starr Manufacturing: Units produced 20,000 Direct labor hours expected 12,000 Variable manufacturing overhead costs $36,000 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved. Based on the information above, the variable manufacturing overhead spending variance is:

Standard rate per hour: $36,000 / 12,000 hours = $3 Variable overhead spending variance: $20,000 - (6,400 hours x $3) = $800 Unfavorable

The following figures represent 100% capacity for Starr Manufacturing: Units produced 20,000 Direct labor hours expected 12,000 Variable manufacturing overhead costs $36,000 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved. Based on the information above, the overhead rate used to apply variable manufacturing overhead to Work-in-Process is:

Standard rate per hour: $36,000 / 12,000 hours = $3

Comparing the standard variable manufacturing overhead costs based on standard hours with the standard variable manufacturing overhead based on actual hours provides:

The variable manufacturing overhead efficiency variance

The difference between the amount of money actually incurred for variable manufacturing overhead and the amount that should have been incurred for the actual activity level achieved, measured in terms of direct labor hours, is:

The variable manufacturing overhead spending variance

The following information is available for Granger Company: Standard variable manufacturing overhead rate per direct labor hour $7.00 Actual variable manufacturing overhead $60,000 Standard direct labor hours for output produced 11,000 Actual direct labor hours worked 10,000 Given the information above, the variable manufacturing overhead efficiency variance is:

Variable manufacturing overhead efficiency variance: (11,000 hours - 10,000 hours) x $7 = $7,000 Favorable

The following information is available for the Ringo Corporation: Actual direct labor hours for March 6,000 Standard direct labor hours for March 7,000 Actual units produced in March 3,000 Estimated variable manufacturing overhead for the year $140,000 Estimated direct labor hours for the year 70,000 Normal yearly capacity 30,000 The amount of variable manufacturing overhead applied to Work-in-Process Inventory in March would be:

Variable manufacturing overhead rate: $140,000 / 70,000 hours = $2 per hour Variable manufacturing overhead applied in March 7,000 hours x $2 = $14,000

Determine the appropriate variable manufacturing overhead rate using the following information: Annual expected manufacturing overhead costs $910,000 Annual expected variable manufacturing overhead costs $360,000 Annual units to be produced 30,000 Annual standard direct labor hours expected 60,000

Variable manufacturing overhead rate: $360,000 / 60,000 hours = $6

A variance that provides an opportunity for control over individual overhead items by highlighting the differences between standard and actual costs is the:

Variable manufacturing overhead spending variance

The following information is available for Granger Company: Standard variable manufacturing overhead rate per direct labor hour $7.00 Actual variable manufacturing overhead $60,000 Standard direct labor hours for output produced 11,000 Actual direct labor hours worked 10,000 Given the information above, the variable manufacturing overhead spending variance is:

Variable manufacturing overhead spending variance: (10,000 hours x $7) - $60,000 = $10,000 Favorable

The following data is known for Lyman, Inc.: Budgeted variable manufacturing overhead $108,000 Budgeted fixed manufacturing overhead $324,000 Budgeted production 36,000 units Budgeted direct labor hours 54,000 units Budgeted direct labor hours per unit 1.5 hours Actual variable manufacturing overhead $136,500 Actual fixed manufacturing overhead $296,000 Actual production 40,000 units Actual direct labor hours 65,000 Standards: Variable manufacturing overhead: 1.5 direct labor hours x $2 = $3 per unit Fixed manufacturing overhead: 1.5 direct labor hours x $6 = $9 per unit Using the information above, compute the variable manufacturing overhead spending variance for Lyman, Inc.

Variable manufacturing overhead spending variance: (65,000 actual hours x $2) - $136,500 = $6,500 Unfavorable

The variance computed by comparing the standard costs at the budgeted activity level with the standard costs at the actual activity level is:

~The materials quantity variance ~The labor efficiency ~The manufacturing overhead efficiency variance ~ALL OF THESE ARE CORRECT