Question

marks) Levie Company uses standard costing. The company prepared its static budget for 2018 at 2,500,000 machine-hours for the year. Total budgeted overhead cost is $31,250,000. The variable overhead rate is $11 per machine-hour ($22 per unit). Actual results for 2018 follow: Machine-hours Output Variable overhead Fixed overhead rate variance 2,400,000 hours 1,245,000 units 25200000 $ 1,500,000 Required I 1. Calculate for the fixed overhead: a. Budgeted amount b. Budgeted cost per machine-hour. c. Actual cost. d. Production-volume variance. 2. Calculate the variable overhead rate variance and the variable overhead efficiency variance.

Answer 1

Solution:

(1)

a.

Budgeted Fixed Overhead = Total Budgeted overhead - Budgeted Variable overhead

= $31,250,000 - 2,500,000 machine hours * $11 per machine hour

= $3,750,000

b.

Fixed overhead budgeted cost per machine hour = $3,750,000 / 2,500,000 machine hours

= $1.5

c.

Fixed overhead rate variance = $1,500,000 U

=> (budgeted fixed overhead rate - actual fixed ovrhead rate ) * actual machine hours = 1,500,000

=> (1.5 - actual fixed ovrhead rate) * 2,400,000 = 1,500,000

=> actual fixed ovrhead rate = 0.875

Therefore,

Actual Fixed Overhead cost = actual fixed ovrhead rate * actual machine hours = 0.875 * 2,400,000 = $2,100,000

d.

Fixed Overhead Production-volume variance. = Budgeted Fixed Overhead - Allocated fixed overhead

= $3,750,000 - $1.5*2,400,000

= $150,000 U

2.

Variable overhead rate variance = (SR - AR) * AH = (11 - $25,200,000 / 2,400,000) 2,400,000 = 1,200,000 U

variable overhead efficiency variance = (SH-AH) * AR

= (22/11* 1,245,000 units - 2,400,000) * $25,200,000 / 2,400,000

= $945,000 F