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A company uses a standard-cost system. The company prepared the following budget using normal capacity for the month of May: Direct labor hours 36,000 Variable factory overhead $ 72,000 Fixed factory overhead $162,000 Actual results were as follows: Direct labor hours worked 33,000 Total factory overhead $220,500 Standard DLH allowed for capacity attained 31,500 What is the budget (controllable) variance for May using the two-way analysis of overhead variances

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Answer:

$4,500 favorable

Explanation:

The computation of the budget (controllable) variance for May using the two-way analysis of overhead variances is shown below:

Variable overhead per labor hour os

= $72,000 ÷ 36000

= $2 per hour

Now

Budgeted overhead for actual production is

= (31,500 × $2) + $162,000

= $225,000

So,

Controllable variance is

= Budgeted overhead for actual production - Actual overhead

= $225,000 - $220,500

= $4,500 favorable

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