Question

For the Win (FTW) Corporation uses a standard costing system in the creation of awards and trophies. The Manufacturing overhead costs are applied to products based on machine time. Required: 1. Unfortunately, due to accounting glitches in FTW's software, several numbers and labels have been omitted from the analysis of fixed overhead below. Supply the missing numbers and labels to help FTW out: (10 marks) Actual Fixed Overhead Cost (a) Flexible Budget Fixed Overhead Cost Overhead Cost Applied to Work in Process (b) 302,400 MH x $1.2 = (c) Budget variance, $3,320 U (d) Total variance, $400 F (e) 2. Next, assume that 6 minutes of machine time is standard per unit of production. How many units were produced in the situation above? (5 marks) 3. Once again, assume that 6 minutes of machine time is standard per unit of production. How many units of production were assumed when the predetermined application rate for fixed overhead was established? (5 marks)

Answer 1

Actual Fixed Overhead Cost a) $362,480 Budget variance Flexible Budget Fixed Overhead Overhead cost Cost applied WIP b) $359,160 C) 302,400* $1.2 = $362,800 $3,320 v d) Volume variance e) Total variance = $400 F Budget variance + Volume variance $3,720 F Total variance Explanation: Budget variance = Budgeted overheads - Actual overheads Volume variance = Budgeted overheads - Applied overheads Total variance = Budget variance + Volume variance 2 Units produced Standard machine hours Total minutes Standard time per unit Units produced 302,400 18,144,000 (Machine hours * 60 minutes per hour) 6 minute 3,024,000 18,144,000/6 Budget variance Total variance Volume variance $3,320 U $400 F $3,720 F Budgeted overheads Budget variance Actual overheads $359,160 see working below $3,320 U $362,480 Applied overheads Volume variance Budgeted overheads $362,880 302,400*$1.2 $3,720 F $359,160 $1.20 3 Budgeted units Machine hour rate Budgeted Machine hours Budgeted minutes Standard time per unit Budgeted units 299,300 $359,160/$1.20 17,958,000 6 minute 2,993,000