Question

Maxwell Company uses a standard cost accounting system and applies production overhead to products on the basis of machine hours. The following information is available for the year just ended:

Standard variable-overhead rate per hour: $7.50

Standard fixed-overhead rate per hour: $12.60

Planned activity during the period: 21,000 machine hours

Actual production: 13,200 finished units

Machine-hour standard: Two completed units per machine hour

Actual variable overhead: $156,200

Actual total overhead: $437,800

Actual machine hours worked: 22,000

Required:

1. 1. Calculate the budgeted fixed overhead for the year.

2. 2. Compute the variable-overhead spending variance.

3. 3. Calculate the company’s fixed-overhead volume variance.

4. 4-a. Did Maxwell spend more or less than anticipated for fixed overhead? How much?

5. 4-b. What was the difference in actual and anticipated overhead?

6. 5. Was variable overhead underapplied or overapplied during the year? By how much?

Was variable overhead underapplied or overapplied during the year? By how much? (Do not round intermediate calculations.)

	Variable overhead is underapplied by

Compute the variable-overhead spending variance. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculation.)

	Variable-overhead spending variance Favorable

Calculate the company’s fixed-overhead volume variance. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculation.)

	Fixed-overhead volume variance Unfavorable

What was the difference in actual and anticipated overhead?

	Fixed-overhead budget variance

Was variable overhead underapplied or overapplied during the year? By how much? (Do not round intermediate calculations.)

	Variable overhead is underapplied by

Answer 1

	Standard fixed-overhead rate per hour	$            12.60
Multiply:	Planned activity during the period (In machine hours)	21,000
	Budgeted fixed overhead	$        264,600

Variable Overhead
Variable overhead spending variance	8,800	Favorable
Variable overhead efficiency variance	115,500	Unfavorable
Fixed overhead
Fixed Overhead Volume Variance	181,440	Unfavorable
Fixed Overhead Budget Variance	17,000	Unfavorable

	Did Maxwell spend more or less than anticipated for fixed overhead? How much?
	Budgeted fixed overhead	$        264,600
	Actual Fixed Overheads (437800-156200)	$        281,600
Difference of above two	Maxwell spend more than anticipated for fixed overhead by	$          17,000
	Fixed Overhead Budget Variance	$          17,000
	Actual variable overhead	$        156,200
Less:	Applied variable overhead (Standard hours = 13200/2 = 6600) (6600*7.50)	$          49,500
	Variable overhead is underapplied by	$        106,700

	Minus sign indicate Favorable variance.
	Measure	Hour
	Standard variable overhead rate per Hour	$                7.50
156200/22000	Actual variable overhead rate per Hour	$                7.10
13200/2	Standard Hours	6600
	Actual Hours	22,000
	Actual variable overhead rate per Hour	7.10
Less	Standard variable overhead rate per Hour	-7.50
	Difference	-0.40
Multiply	Actual Hours	22000
	Variable overhead spending variance	$           (8,800)
	Indicate	Favorable
	Actual Hours	22000
Less	Standard Hours	-6600
	Difference	15400
Multiply	Standard variable overhead rate per Hour	7.50
	Variable overhead efficiency variance	$         115,500
	Indicate	Unfavorable

Minus sign indicate Favorable variance.
Budgeted Fixed Overheads (12.60*21000)	264600
Actual Fixed Overheads (437800-156200)	281600
Budgeted units (21000*2)	42000
Actual units	13200
Overhead rate =( Budgeted Fixed Overheads / Budgeted units)
Applied Fixed Overhead = (Budgeted Fixed Overhead Rate * Actual units)
Budgeted Fixed Overhead Rate (264600/42000)	$                     6.30
Budgeted Fixed Overheads	264600
Less: Applied Fixed Overhead (6.3*13200)	-83160
Fixed Overhead Volume Variance	$              181,440
Indicate	Unfavorable
Actual Fixed Overheads	281600
Less: Budgeted Fixed Overheads	-264600
Fixed Overhead Budget Variance	$                17,000
Indicate	Unfavorable