Question

Norwall Company's variable manufacturing overhead should be $1.95 per standard machine-hour and its fixed manufacturing overhead should be $36,036 per month. The following information is available for a recent month: a. The denominator activity of 18,480 machine-hours is used to compute the predetermined overhead rate. b. At the 18,480 standard machine-hours level of activity, the company should produce 6,600 units of product. c. The company's actual operating results were: Number of units produced Actual machine-hours Actual variable manufacturing overhead cost Actual fixed manufacturing overhead cost 7,550 19,630 $ 41,223 $ 35,500

Answer 1

Solution 1:

Computation of Predetermined overhead rate - Norwall Company
Particulars	Amount
Budgeted variable manufacturing overhead ($1.95*18480)	$36,036.00
Budgeted fixed manufacturing overhead	$36,036.00
Total Manufacturing overhead	$72,072.00
/Budgeted direct labor hours	18480
Predetermined overhead rate	$3.90
Less: Variable overhead rate (Per direct labor hour)	$1.95
Fixed manufacturing overhead rate (per direct labor hour)	$1.95

Solution 2:

Standard hours = 18480 / 6600 * 7550 = 21,140 hours

Solution 3:

Variable overhead actual rate = $41223 / 19630 = $2.10

Variable overhead rate variance = (SP - AP) *Actual Hours = ($1.95 - $2.10) *19630 = $2944.50 Unfavorable

Variable overhead Efficiency variance = (Standard hours - Actual Hours) *SP = (21140- 19630)*$1.95 = $2944.50 Favorable

Fixed overhead budget Variance = Budgeted Fixed Overhead - Actual Fixed overhead = $36036 - $35500 = $536.00 Favorable

Fixed Overhead Volume Variance = ($1.95*21140) - $36036= $5187.00 Favorable