Question

Walkenhorst Company’s machining department prepared its 2019 budget based on the following data:

Practical capacity		40,000	units
Standard machine hours per unit		2
Standard variable factory overhead		$3.00	per machine hour
Budgeted fixed factory overhead	$	360,000

The department uses machine hours to apply factory overhead to production. In 2019, the department used 85,000 machine hours and incurred $625,000 in total manufacturing overhead cost to manufacture 42,000 units. Actual fixed overhead cost for the year was $375,000.

Required:

Determine for the year:

1. The fixed, variable, and total factory overhead application rates (per machine hour). (Round your answers to 2 decimal places.)

2. The total flexible budget, for factory overhead cost based on output achieved in 2019.

3. The production volume variance. State whether this variance was favorable (F) or unfavorable (U).

4. The total overhead spending variance. State whether this variance was favorable (F) or unfavorable (U).

5. The overhead efficiency variance. State whether this variance was favorable (F) or unfavorable (U).

6. The variable overhead spending variance and the fixed overhead spending variance. State whether each variance is favorable (F) or unfavorable (U).

Walkenhorst Company’s machining department prepared its 2019 budget based on the following data: Practical capacity 40,000 units Standard machine hours per unit 2 Standard variable factory overhead $3.00 per machine hour Budgeted fixed factory overhead $ 360,000 The department uses machine hours to apply factory overhead to production. In 2019, the department used 85,000 machine hours and incurred $625,000 in total manufacturing overhead cost to manufacture 42,000 units. Actual fixed overhead cost for the year was $375,000. Required: Determine for the year: 1. The fixed, variable, and total factory overhead application rates (per machine hour). (Round your answers to 2 decimal places.) 2. The total flexible budget, for factory overhead cost based on output achieved in 2019. 3. The production volume variance. State whether this variance was favorable (F) or unfavorable (U). 4. The total overhead spending variance. State whether this variance was favorable (F) or unfavorable (U). 5. The overhead efficiency variance. State whether this variance was favorable (F) or unfavorable (U). 6. The variable overhead spending variance and the fixed overhead spending variance. State whether each variance is favorable (F) or unfavorable (U).

Answer 1

Ans 1
Variable factory overhead	$3	per machine hour
Fixed overhead application rate	$4.50	per machine hour
(360,000/40,000*) =9/2
Total factory overhead application rate	$8.50
Ans 2
Flexible Budget for overhead cost	612000
Std machine hours allowed for actual production =42,000*2=84,000
(84,000*3)+360,000

Ans 3
Fixed overhead production volume variance	- 18,000
Budgeted - Applies fixed overhead	18,000	F
360,000 - (84,000*4.50)
Ans 4
Total Overhead Spending Variance	10,000	U
Actual Overhead -Overhead applied on actual hours
(625,000-(360,000 +(85,000*3)

Ans 5
Overhead efficiency variance	3,000	U
(Std rate*actual hours)-Flexible Budget
(360,000 + (85,000*3)) - 612,000
Ans 6
Variance overhead spending variance	-5000
Actual Variance overhead-(Std rate*actual hours)	5000	F
(625,000 - 375,000)-(3*85,000)
Fixed overhead spending variance	15000	U
Actual - Budgeted
375,000 - 360,000