Question

Expand Your Critical Thinking 24-02 a-d Ana Carillo and Associates is a medium-sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are standard size. One such non-custom model is called Luxury Base Frame. Normal production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 670 units were produced: 4,500 direct labor hours allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows. Actual (670 units) Standard (1,000 units) $ 9,500 34,100 17,800 10,300 21,400 7,900 Indirect materials Indirect labor (Fixed) Manufacturing supervisors salaries (Fixed) Manufacturing office employees salaries (Fixed) Engineering costs Computer costs Electricity (Fixed) Manufacturing building depreciation (Fixed) Machinery depreciation (Fixed) Trucks and forklift depreciation Small tools (Fixed) Insurance (Fixed) Property taxes Total $ 9,800 40,500 17,500 9,900 19,800 7,900 2,000 6,300 2,400 1,200 1,100 2,000 6,300 2.400 1,200 600 400 200 $114,100 400 200 $119,000

Answer 1

a. Determine the overhead application rate?

b. Determine how much overhead was applied to production.

c. Calculate the total overhead variance, controllable variance and volume variance.

Refer to the below images for more detailed solution with calculations.

sent @ @: Determine the overhead application rate ? Requirement Application rate = overhead Toral Standard overheads Standard Hours Toral 114100 . = $22.82 per 5000 direct labor hour. 5000 hours [ 10oot 5 ] ( 9 oral Standard hours = For ionit Shours for 1000 hits - ? how . much was : overhead applied to Determine production- Reavixemen The standard direct labor hours are used to apply overhead to prodution therefore overhead application to production is = $22.82 x 4500 hours (standard) = $102690 @. @: calculate variance the and total overhead Variance, controllable volume variance; Rearrement overhead Actual - Applied overhead Total overhead variance = $ 119000 - $102690 - $ 16310 (on favourable)

The overhead budgeted computed as follows: for 4500 direct labor hours is Fixed : $ 17800 + $ 10300 t f 21400 t f 6300+ 2400+ & 1200 +9 400 + $ 200 = 60000 wariable : [ 9500 +$34100 + $7900 + $ 2000+ $ 600]: Sooo hours = $ 10.82 * $ 60000 Fixed Variable $ 48690 [ 4500 hours x $ 10-82] $108690 The variances are & controllable Nariance = Actual ($ 119000) - Budgeted (of 108690) = 410310 Confavourable) volume Variance = $12h per hour x [5000 - 4500] & & 6000 (unfavourable) & 60000 Jooo hours = $10 per hour -