Plimpton Company produces countertop ovens. Plimpton uses a standard costing system. The standard costing system relies on direct labor hours to assign overhead costs to production. The direct labor standard indicates that two direct labor hours should be used for every oven produced. The normal production volume is 100,000 units. The budgeted overhead for the coming year is as follows: Fixed overhead $770,000
Variable overhead 444,000
Plimpton applies overhead on the basis of direct labor hours. During the year, Plimpton produced 97,000 units, worked 196,000 direct labor hours, and incurred actual fixed overhead costs of $780,000 and actual variable overhead costs of $435,600.
Required:
1. Calculate the standard fixed overhead rate and the standard variable overhead rate.
2. Compute the applied fixed overhead and the applied variable overhead.
What is the total fixed overhead variance?
What is the total variable overhead variance?
3. Break down the total fixed overhead variance into a spending variance and a volume variance.
Spending Variance $
Volume Variance $
4. Compute the variable overhead spending and efficiency variances.
5. Now assume that Plimpton’s cost accounting system reveals only the total actual overhead. In this case, a three-variance analysis can be performed. Using the relationships between a three- and four-variance analysis, indicate the values for the three overhead variances.

Explanation:

Hours Required Per Unit = 2

Production Volume = 100,000

Total Hours required = 200,000 units

1. The standard fixed overhead rate will be:

= Fixed overhead/Total hours required

= $770,000/200,000

= $3.85/hour

The standard variable overhead rate will be:

= Variable Overhead /Total Hours required

= $440,000/200000

= $2.22 /hour

2. The applied fixed overhead will be:

= standard fixed overhead rate × actual production × hours required per unit

= 3.85 × 97000 × 2

= $746,900

The applied variable overhead will be:

= standard variable overhead rate × actual production × hours required per unit

= 2.22 × 97000 × 2

= $430,680

The total fixed overhead variance will be:

= Actual overhead - Standard overhead

= $435600 - $430680

= $4920

The total variable overhead variance will be:

= $780000 - $746900

= $33100

3. The spending variance of the total fixed overhead variance will be:

= (3.85 × 200000) - 780000

= -10000

The volume variance of the total fixed overhead variance will be:

= 746900 - (3.85 × 200000)

= -23100

4. The variable overhead spending variance will be:

= (2.22 × 196000) - 430680

= -480

The variable overhead efficiency variances will be:

= 430680 - (2.22 × 196000)

= -4440

5. Based on the information given, the variances will be:

Volume Variance = -23100

Efficiency Variance = -4440

Spending Variance = (-480-10000) = -10480

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