Question:
Calculating factory overhead: two variances
Missoula Manufacturing Company normally produces 10,000 units of product X each month. Each unit requires 2 hours of direct labor, and factory overhead is applied on a direct labor hour basis. Fixed costs and variable costs in factory overhead at the normal capacity are $5 and $3 per unit, respectively. Cost and production data for May follow:
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Production for the month
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9,000 units
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Direct labor hours used
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18,500 hours
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Factory overhead incurred for:
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Variable costs
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$28,500
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Fixed costs
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$52,000
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a. Calculate the controllable variance.
b. Calculate the volume variance.
c. Was the total factory overhead under- or over applied? By what amount?