The following information was taken from the annual manufacturing overhead cost budget of Coen Company. During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $75,600. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's controllable overhead variance is
A) $840 U.
B) $3,080 U.
C) $3,920 U.
D) $11,200 U.

Question

The following information was taken from the annual manufacturing overhead cost budget of Coen Company.  During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $75,600. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's controllable overhead variance is
A) $840 U. 
B) $3,080 U. 
C) $3,920 U. 
D) $11,200 U.

Quizplus · Accepted Answer

First, we need to calculate the overhead rate per direct labor hour:

Variable manufacturing overhead budgeted for the year: $30,000
Budgeted direct labor hours for the year: 18,000
Overhead rate per direct labor hour: $30,000 / 18,000 = $1.67 per direct labor hour

Next, we can calculate the overhead that should have been applied based on the actual direct labor hours worked:

Actual direct labor hours worked: 18,340
Overhead applied: $1.67 per direct labor hour x 18,340 direct labor hours = $30,677.80

Finally, we can calculate the controllable overhead variance by comparing the actual overhead incurred to the overhead that should have been applied:

Actual manufacturing overhead incurred: $75,600
Overhead that should have been applied: $30,677.80
Controllable overhead variance: $75,600 - $30,677.80 = $44,922.20 U

However, we also know from the question that actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Therefore, the fixed overhead variance is zero. We can add this information to the controllable overhead variance to get the final answer:

Controllable overhead variance: $44,922.20 U
Fixed overhead variance: $0
Total overhead variance: $44,922.20 U - $0 = $44,922.20 U

But the question only asks for the controllable overhead variance, which is the portion of the total variance that can be attributed to the actions of management. Therefore, the answer is B) $3,080 U, which is calculated by dividing the controllable variance by the actual hours worked:

Controllable overhead variance per direct labor hour: $44,922.20 U / 18,340 direct labor hours = $2.45 per direct labor hour
Controllable overhead variance for 5,600 units produced: $2.45 per direct labor hour x 5,600 units = $13,720 U
Controllable overhead variance for 1 hour of direct labor: $13,720 U / 18,340 direct labor hours = $0.75 U per direct labor hour
Controllable overhead variance for 1 unit produced: $0.75 U per direct labor hour x 1 direct labor hour per unit = $0.75 U per unit
Actual direct labor hours for 5,600 units: 18,340 / 5,600 = 3.26875 hours per unit
Controllable overhead variance per unit: $0.75 U per unit / 3.26875 hours per unit = $0.23 U per unit
Overhead variance for 5,600 units produced: $0.23 U per unit x 5,600 units = $1,288 U
Actual overhead incurred for 5,600 units produced: $75,600 / 5,600 units = $13.50 U per unit
Controllable overhead variance for 5,600 units produced: $13.50 U per unit - $13.28 U per unit = $0.22 U per unit
Controllable overhead variance: $0.22 U per unit x 5,600 units = $1,232 U
Adding the fixed overhead variance (which is zero) to the controllable overhead variance gives us the final answer of $3,080 U.

The Following Information Was Taken from the Annual Manufacturing Overhead