The Condensed Flexible Budget of the Evergreen Company for the Year

question 132

Essay

The condensed flexible budget of the Evergreen Company for the year is given below:
Direct labor-hours
$$\begin{array} { l c c c c } & { \text { Direct labor-hours } } \\\text { Overhead costs: } & 30,000 & 40,000 & 50,000 \\\text { Variable costs } & \$ 75,000 & ? & ? \\\text { Fixed costs }& ? & ? & \$ 320,000\end{array}$$

The company produces a single product that requires 2.5 direct labor-hours to complete. The direct labor wage rate is $7.50 per hour. Three yards of raw material are required for each unit of product, at a cost of $5 per yard.
Assume that the company chooses 50,000 direct labor-hours as the denominator level of activity, but actually worked 48,000 hours during the year, producing 18,500 units.
Actual overhead costs for the year are:
$\begin{array}{lrr} \text { Variable costs } &\$124,800\\ \text { Fixed costs} &\underline{321,700}\\ \text { Total overhead costs}&\underline{\$446,500}\end{array}$

Required:
(Be sure to indicate whether the variances are favorable or unfavorable.)
a. Compute the variable overhead price variance and the variable overhead efficiency variance.
b. Compute the fixed overhead spending (budget) variance and the production volume variance.

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Definitions:

Default Rules

Default rules are legally established standards that apply when parties to a contract do not stipulate their own arrangements or when such arrangements are not legally enforceable.

LLC

Stands for Limited Liability Company, a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

Limited Partnership

A business arrangement where one or more partners are liable only to the extent of their investment, while at least one partner has unlimited liability.

Certificate of Limited Partnership

A legal document filed with a state government to establish the existence of a limited partnership.