Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman

Exercise 5

Artco Planters
Artco manufactures fiberglass home and office planters in a variety of decorator colors. These planters, in three sizes, are used to hold indoor plants. Overhead is allocated based on the standard pounds of fiberglass per planter. Here are standards for the three planters: Artco uses a flexible budget to calculate overhead rates at the beginning of the year. Fixed overhead for the year is budgeted at $593,950, and variable overhead is budgeted at $2.10 per pound of fiberglass. Actual overhead incurred is $633,805. The accompanying table summarizes the actual results for the year. Required:
a. Calculate the total variance (over/underabsorbed) if standard pounds are used to assign overhead to products.
b. Calculate the total overhead variance (over/underabsorbed) if actual pounds are used to assign overhead to products.
c. Explain why the answers differ in parts ( a ) and ( b ).