This is an interesting question as it test how deep is the understanding of the concept of factory overhead variance.
Here the volume variance is a noise and should be ignored.
You should use the formula for the spending variance to solve the problem.
Let's assume X is the actual hours:
(1) VOH spending variance = 0.5X -
(Actual variable OH rate * X)(2) FOH Spending variance = 110 000 -
Actual Fixed cost-------------------------
(1) +(2) OH Spending variance = 0.5 X + 110 000 -
Actual OH
Note that there is no need to calculate the Actual variable OH rare since you are given the actual spend.
Putting the numbers on the equation lead to the below equation:
(8000) = 0.5 X + 110 000 - 178 500
0 =
0.5 X + 110 000 - 178 500 + 8000X = 60 500 / 0.5
X = 121 000 ! This is the answer !
a faster way is to understand the spending variance is the difference between the predicted variable costs and total Actual costs.
in this case,
(8 000) = 0.5 X + 110 000 - 178 500
solving this equation give you the same result as above.
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Jean Georges Ngatsimi
Katy TX
United States
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Original Message:
Sent: 06-19-2019 01:45 AM
From: Rituparni Pinisetti
Subject: Question in Performance Management
The following information relates to a given department of Herman Company for the fourth quarter:
Total actual overhead (fixed plus variable) | $178,500 |
Budget formula | $110,000 plus $0.50 per hour |
Total overhead application rate | $1.50 per hour |
Spending variance | $8,000 unfavorable |
Volume variance | $5,000 favorable |
What were the actual hours worked in this department during the quarter?
137,000
121,000
127,000
119,000
Could someone please help me in this question, thank you!
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Ritu
Student
Bangalore
India
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