29 Jun Question
Question
Able Control Company, which manufactures electrical switches, uses a standard cost system and carries all
inventory at standard cost. The standard factory overhead cost per switch is based on DLHs.
Problem Information
Variable overhead
Fixed overhead*
Total standard overhead cost per unit produced
5 hours at
5 hours at
* Based on a practical capacity of
The following information is for the month of October:
Actual units produced
Practical capacity (in units)
Actual DLHs worked
Actual DL cost incurred
Actual variable overhead costs incurred
Actual fixed overhead costs incurred
$8.00 /hour
$12.00 /hour
$40.00
$60.00
$100.00
300,000 DLHs per month.
56,000
60,000
275,000
$2,550,000
$2,340,000
$3,750,000
The production manager argued during the last performance review that the company should use a more up-to-date basefor charging factory overhead costs to production. She commented that her factory had been highly automated in the lasttwo years and, as a result, now has hardly any labor. The factory hires only highly skilled workers to set up production runsand to do periodic adjustments of machinery whenever the need arises.
Requirements
1. Compute the following for Able Control Company:
a. The fixed overhead spending variance for October.
b. The factory overhead production-volume variance for October.
c. The variable overhead spending variance for October.
d. The variable overhead efficiency variance for October.
2. Comment on the implications of the variances and suggest any action that the firm should take to improve
its operations.
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