Question

Norwall Company's budgeted variable manufacturing overhead cost is $1.30 per machine-hour and its budgeted fixed manufacturing overhead is $30,624 per month. The following information is available for a recent month: a. The denominator activity of 9,570 machine-hours is used to compute the predetermined overhead rate. b. At a denominator activity of 9,570 machine-hours, the company should produce 3,300 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 4,570 10,090 $ 14,630 $ 35,300 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.) per MH per MH per MH MHS 1. Predetermined overhead rate Variable element Fixed element 2. Standard hours allowed for the actual production 3. Variable overhead rate variance Variable overhead efficiency variance Fixed overhead budget variance Fixed overhead volume variance

Answer 1

Answers

• Requirements 1 and 2

1	Predetermined Overhead rate	$4.50	per MH
	Variable element	$1.30	per MH
	Fixed element	$3.20	per MH
2	Standard hours allowed for actual production	13,253	MHs

--Workings

A	Variable element	$1.30	per MH
B	Budgeted fixed cost	$30,624
C	Budgeted machine hours	9570
D = B/C	Fixed element	$3.20	per MH
E = A+D	Predetermined Overhead rate	$4.50	per MH
F	Budgeted units	3300
G = C/F	Budgeted MH per unit	3	per unit
H	Actual Production	4570	units
I = G x H	Standard hours allowed for actual production	13253	MHs

• Requirement 3, with calculations

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                1.30	-	$                       1.45	)	x	10090
	-1513
	Variance		$              1,513.00			Unfavourable-U

Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	13253	-	10090	)	x	$                           1.30
	4111.9
	Variance		$              4,111.90			Favourable-F

Fixed Overhead Production Budget Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$                      30,624.00	-	$            35,300.00	)
	-4676
	Variance		$              4,676.00			Unfavourable-U

Fixed Overhead Production Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Budgeted Fixed Overhead	)
(	$                      42,409.60	-	$            30,624.00	)
	11785.6
	Variance		$            11,785.60			Favourable-F