Nova Manufacturing applies factory overhead to products on the basis of direct labor hours. At the beginning of the current year, the company's accountant made the following estimates for the forthcoming period:
- Estimated variable overhead: $500,000
- Estimated fixed overhead: $400,000
- Estimated direct labor hours: 40,000
It is now 12 months later. Actual total overhead incurred in the manufacture of 7,900 units amounted to $895,100. Actual labor hours totaled 39,800. Assuming a direct labor standard of five hours per finished unit, calculate the following:
a. Variable overhead efficiency variance
b. Fixed overhead volume variance
c. Overhead spending variance
Centron, Inc., has the following budgeted production costs:
|
Direct materials
|
$0.40 per unit
|
|
Direct labor
|
1.80 per unit
|
|
Variable factory overhead
|
2.20 per unit
|
|
Fixed factory overhead
|
|
Supervision
|
$24,000
|
|
Maintenance
|
18,000
|
|
Other
|
12,000
|
The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:
|
Direct Materials
|
|
$10,710
|
|
|
Direct Labor
|
|
47,175
|
|
|
Variable factory overhead
|
51,940
|
|
|
Fixed factory overhead
|
|
|
|
|
Supervision
|
|
24,500
|
|
|
Maintenance
|
|
23,700
|
|
|
Other
|
|
16,800
|
|
|
Total production costs
|
|
$174,825
|
|
Instructions:
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b. Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.