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Horngren'S Financial And Managerial Accounting
Found in: Page 1305

Short Answer

00Question: Mason Fender is a competitor of Matthews Fender from Exercise E23­19. Mason Fender also uses a standard cost system and provides the following information:

Static budget variable overhead $ 2,300

Static budget fixed overhead $ 23,000

Static budget direct labor hours 575 hours

Static budget number of units 23,000 units

Standard direct labor hours 0.025 hours per fender

Mason Fender allocates manufacturing overhead to production based on standard direct labor hours. Mason Fender reported the following actual results for 2018: actual number of fenders produced, 20,000; actual variable overhead, $5,350; actual fixed overhead, $26,000; actual direct labor hours, 460.


1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.

2. Explain why the variances are favorable or unfavorable.


The VOH cost variance is $3,510 U, VOH efficiency variance is $160 F, and FOH cost variance is $3,000 U, and FOH volume variance is $3,000 U.

In part 2, it is stated that variable overhead variance is unfavorable as the actual cost was not under the standard costs, the overhead efficiency variance is favorable as actual usage was under the standards and fixed cost variance is unfavorable as it was not kept under budget

See the step by step solution

Step by Step Solution

Step 1 Computation of the allocation rate

Step 2 Computation of the Variable Overhead Variance

Step 3 Computation of the Fixed overhead Variance

Step 4 Explanation of favorable or unfavorable variances

The unfavorable variable overhead cost variance indicates that the actual variable overhead cost per direct labor was not kept within the cost standards.

The favorable overhead efficiency variance shows that the actual usage of direct labor hours was kept within the standard.

The variance of fixed overhead costs was unfavorable because the actual total cost was not kept within the budget.


Most popular questions for Business-studies Textbooks

Drew Castello, general manager of Sunflower Manufacturing, was frustrated. He wanted the budgeted results, and his staff was not getting them to him fast enough. Drew decided to pay a visit to the accounting office, where Jeff Hollingsworth was supposed to be working on the reports. Jeff had recently been hired to update the accounting system and speed up the reporting process.

“What’s taking so long?” Drew asked. “When am I going to get the variance reports?” Jeff sighed and attempted to explain the problem. “Some of the variances appear to be way off. We either have a serious problem in production, or there is an error in the spreadsheet. I want to recheck the spreadsheet before I distribute the report.” Drew pulled up a chair, and the two men went through the spreadsheet together. The formulas in the spreadsheet were correct and showed a large unfavorable direct labor efficiency variance. It was time for Drew and Jeff to do some investigating.

After looking at the time records, Jeff pointed out that it was unusual that every employee in the production area recorded exactly eight hours each day in direct labor. Did they not take breaks? Was no one ever five minutes late getting back from lunch? What about clean­up time between jobs or at the end of the day?

Drew began to observe the production laborers and noticed several disturbing items. One employee was routinely late for work, but his time card always showed him clocked in on time. Another employee took 10­ to 15­minute breaks every hour, averaging about 1 hours each day, but still reported eight hours of direct labor each day. Yet another employee often took an extra 30 minutes for lunch, but his time card showed him clocked in on time. No one in the production area ever reported any “down time” when they were not working on a specific job, even though they all took breaks and completed other tasks such as doing clean­up and attending department meetings.


1. How might the observed behaviors cause an unfavorable direct labor efficiency variance?

2. How might an employee’s time card show the employee on the job and working when the team member was not present?

3. Why would the employees’ activities be considered fraudulent?


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