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	Flexible Budget Overhead Cost	Fixed Overhead Cost Applied to Work in Process
(a)	(b)	302,700 MH x $1.2 = (c)
	Budget variance, $3,020 U	(d)
	Total variance, $820 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

Solution:

1.

Fixed overhead cost applied to WIP = 302,700 * $1.2 = $363240

Total variance = $820 F

Actual fixed overhead cost = $363240- $820 = $362420

Budget variance= $3,020 U

Flexible budget overhead cost = $362420- $3,020 = $359.400

2.

Standard time per unit = 6 minutes = 0.10 hours

Nos of units actually produced = Standard hours / Standard hour per unit = 302,700 / 0.10 = 3027000 units

3.

Nos of unit of production assumed when the predetermined application rate for fixed overhead was established = Budgeted fixed overhead / (Predetermined overhead rate per machine hour * Machine hour per unit)

= $359.400/ (1.2*0.10)

= 2,995,000 units