Reference no: EM132552920

You are told that the Cost Accountant attached to the factory at West Wyalong has become ill and you are asked to "drive up there and sort things out for a day or so." After a five hour drive, you arrive at the West Wyalong factory to discover that it manufactures plough blades that are widely in demand from farms across Australia. The factory uses a standard costing system except that raw materials are so cheap they are incorporated in variable overheads.

The standard manufacturing overhead costs per plough blade are based on direct labour hours and are as follows:

Variable overhead (5 hours @ $36 per hour)      $180

Fixed overhead (5 hours @ $54 per hour)           $270

Total overhead                                                $450

Fixed overhead is based on capacity of 150,000 direct labour hours per month.

(i). The following information is available for the month of June:

(ii). 28,000 plough blades were produced, although 30,000 plough blades were budgeted.

(iii). 137,500 direct labour hours were worked at a total cost of $5,737,500.

(iv). Variable overhead costs were $5,265,000.

(v). Fixed overhead costs were $8,437,500.

Required: Answer all questions below:

On arrival, you are asked by the manager to urgently calculate the following, as he needs the results for a management conference later that day:

Question (a) Calculate the variable overhead spending and efficiency variances for October.

Question (b) Calculate the fixed overhead budget and volume variances for October.

Question (c) Indicate whether each variance is favourable or unfavourable.