2.
Variable Manufacturing Overhead Control
Accounts Payable Control and other accounts
245,000
Work-in-Process Control
Variable Manufacturing Overhead Allocated
211,200
Variable Manufacturing Overhead Allocated
Variable Manufacturing Overhead Spending Variance
Variable Manufacturing Overhead Efficiency Variance
Variable Manufacturing Overhead Control
211,200
17,800
16,000
Fixed Manufacturing Overhead Control
Wages Payable Control, Accumulated Depreciation
Control, etc.
373,000
Work-in-Process Control
Fixed Manufacturing Overhead Allocated
396,000
245,000
211,200
245,000
373,000
Fixed Manufacturing Overhead Allocated
396,000
Fixed Manufacturing Overhead Spending Variance
13,000
Fixed Manufacturing Overhead Production-Volume Variance
Fixed Manufacturing Overhead Control
396,000
36,000
373,000
3.
Individual fixed manufacturing overhead items are not usually affected very much by
day-to-day control. Instead, they are controlled periodically through planning decisions and
budgeting procedures that may sometimes have horizons covering six months or a year (for
example, management salaries) and sometimes covering many years (for example, long-term
leases and depreciation on plant and equipment).
4.
The fixed overhead spending variance is caused by the actual realization of fixed costs
differing from the budgeted amounts. Some fixed costs are known because they are
contractually specified, such as rent or insurance, although if the rental or insurance contract
expires during the year, the fixed amount can change. Other fixed costs are estimated, such as
the cost of managerial salaries which may depend on bonuses and other payments not known at
the beginning of the period. In this example, the spending variance is unfavorable, so actual
FOH is greater than the budgeted amount of FOH.
The fixed overhead production volume variance is caused by production being over or
under expected capacity. You may be under capacity when demand drops from expected levels,
or if there are problems with production. Over capacity is usually driven by favorable demand
shocks or a desire to increase inventories. The fact that there is a favorable volume variance
indicates that production exceeded the expected level of output (4,400 units actual relative to a
denominator level of 4,000 output units).
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