Question

Une vallarice. EXERCISE 10A-2 Predetermined Overhead Rate; Overhead Variances LO10-3, L010-4 Norwall Company's budgeted variable manufacturing overhead cost is $3.00 per machine-hour and its budgeted fixed manufacturing overhead is $300,000 per month. The following information is available for a recent month: a. The denominator activity of 60,000 machine-hours is used to compute the predetermined overhead rate. b. At a denominator activity of 60,000 machine-hours, the company should produce 40,000 units of product C. The company's actual operating results were: Number of units produced....... 42,000 64,000 Actual machine-hours............... $185,600 Actual variable manufacturing overhead cost ......... $302,400 Actual fixed manufacturing overhead cost...........

Answer 1

Answer

• Requirement 1

A	Budgeted Fixed Overhead	$300,000
B	Estimated machine hours	60,000
C = A/B	Fixed Overhead rate	$5	per MH Answer
D	Variable Overhead rate	$3	per MH Answer
E = C+D	Predetermined Overhead rate	$8	per MH Answer

• Requirement 2

Standard hours allowed for actual production
= (60000 MHs / 40000 units) x 42000 actual units
= 63,000 machine hours

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                3.00	-	$                       2.90	)	x	64000
	6400
	Variance		$              6,400.00			Favourable-F

Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	63000	-	64000	)	x	$                           3.00
	-3000
	Variance		$              3,000.00			Unfavourable-U

Fixed Overhead Production Budget Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$                   300,000.00	-	$          302,400.00	)
	-2400
	Variance		$              2,400.00			Unfavourable-U

Fixed Overhead Production Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Budgeted Fixed Overhead	)
(	$                   315,000.00	-	$          300,000.00	)
	15000
	Variance		$            15,000.00			Favourable-F

• Related Working

	Hrs	Rate	Amount
Budgeted Fixed Overhead	60000	$                   5.00	$        300,000.00
Standard Fixed Overhead or Fixed Overhead absorbed	63000	$                   5.00	$        315,000.00
Actual Fixed Overhead incurred	64000	4.725	$        302,400.00

Actual DATA for		42000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Variable Overhead	64000	$                   2.90	$        185,600.00

Standard DATA for		42000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Variable Overhead	( 1.5 hours x 42000 units)=63000 hours	$                   3.00	$     189,000.00