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 a 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 1,080 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows. Standard(1,000 units)Actual(1,080 units)Indirect materials$  15,000$  15,400Indirect labor53,70063,700(Fixed) Manufacturing supervisors salaries28,10027,500(Fixed) Manufacturing office employees salaries16,20015,600(Fixed) Engineering costs33,70031,200Computer costs12,50012,500Electricity3,1003,100(Fixed) Manufacturing building depreciation10,00010,000(Fixed) Machinery depreciation3,7003,700(Fixed) Trucks and forklift depreciation1,9001,900Small tools9001,800(Fixed) Insurance600600(Fixed) Property taxes400400  Total$179,800$187,400

Your answer is correct.  Determine the overhead application rate. (Round answer to 2 decimal places, e.g. 15.75.)Overhead application rate $Type your answer here per direct labor hourLINK TO TEXT

Your answer is correct.   Determine how much overhead was applied to production. Applied overhead $Type your answer here LINK TO TEXT

Your answer is partially correct.  Try again.   Calculate the total overhead variance,  controllable variance, and volume variance. (Round variable overhead to 2 decimal places and final answers to 0 decimal places, e.g. 1,575.) Total overhead variance$  Controllable variance$ 92694 - wrong cannot figure out what I'm doing wrong FavorableVolume variance$  LINK TO TEXT

Your answer is correct.  Decide which overhead variances should be investigated.Choose your answer here Controllable varianceVolume varianceBoth of the aboveNeither of the aboveClick if you would like to Show Work for this question:Open Show WorkLINK TO TEXT

Answer 1

a)

Overhead application rate = Total standard overhead / Total standard hours

                                          = $117,800 / (1000*5)

                                          = $23.56 per hour

b)

Applied overhead = Standard hours for actual production * Overhead application rate

                             = 4500 * $23.56

                             = $106,020

c)

Total overhead variance = Applied overhead - Actual overhead = $106,020 - $122,900 = $16,880U

Total budgeted variable overhead = $9,800 + $35,200 + $8,200 + $2,000 + $600 = $55,800

Variable overhead rate per hour = $55,800 / (1000*5) = $11.16

Budgeted fixed overhead = $117,800 - $55,800 = $62,000

Budgeted overhead for actual production = Variable overhead + Fixed overhead

                                                                  = (4500 * $11.16) + $62,000

                                                                  = $112,220

Actual overhead incurred = $122,900

Controllable variance= Budgeted overhead - Actual overhead = $112,220 - $122,900 = $10,680 U

Volume variance = Overhead applied - Budgeted overhead = $106,020 - $112,220 = $6,200 U

d)

Controllable variance should be investigated as volume variance is based on number of actual units produced and according to that fixed overhead applied to production.