Question

Norwall Company's budgeted variable manufacturing overhead cost is $1.80 per machine-hour and its budgeted fixed manufacturing overhead is $54,868 per month. The following information is available for a recent month: a. The denominator activity of 25,520 machine-hours is used to compute the predetermined overhead rate. b. At a denominator activity of 25,520 machine-hours, the company should produce 11,600 units of product. c. The company's actual operating results were: Number of units produced Actual machine-hours Actual variable manufacturing overhead cost Actual fixed manufacturing overhead cost 12,840 26,070 $ 49,533 $ 56,300 Required: 1. Compute the predetermined overhead rate and break it down into variable and fixed cost elements. (Round your answers to 2 decimal places.) 2. Compute the standard hours allowed for the actual production. 3. Compute the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

1. Computation of predetermined overhead rate

Predetermined overhead rate = ( variable overhead+ fixed overhead) / number of machine hours

Variable overhead = variable manufacturing cost per machine hour × number of machine hours

= $1.8× 25520

Variable overhead = $45,936

Fixed overhead = $ 54,868

Predetermined overhead rate = ($45,936+$54,868)/25,520

= $3.95 per machine hour

Variable element = $1.8 per machine hour

Fixed element. = $ 54,868/25520 = $ 2.15 per machine hour

2. Computation of standard hours for actual production

Norwall company requires 25,520 machine hours to produce 11,600 units .

Therefore for one unit it takes 25,520÷11,600 = 2.2 machine hours

Actual production is 12,840 units

Standard hours for actual production = 12,840 × 2.2 machine hours

28,248 machine hours

3. Actual variable manufacturing overhead = $49,533

Actual machine hours = 26,070

Actual variable overhead rate per machine hour = $49,533÷26,070

=$1.9 per MH

Variable overhead rate variance = (standard rate - actual rate) × actual machine hours

=($1.8-$1.9) ×26,070

= - $2,607

Variable overhead rate variance $2,607 unfavorable

Variable overhead efficiency variance= (AH - SH) × SR

= (26,070 - 25,520) × $1.8

= $990 unfavorable

Fixed overhead budget variance = Actual fixed overhead- Budgeted fixed overhead

= $56,300- $54,868 =$1,432 unfavorable

Fixed overhead volume variance = Budgeted fixed overhead - SHA × SR

= $54,868 - 12,840 × (54,868÷11,600) = $ 5,865