Question

ACME manufacturing is a low-cost producer of a single, commodity product: RGL-01. Standard overhead cost information for one unit of this product is presented below:

Standard number of machine hours per unit produced		0.5
Standard variable overhead rate per machine hour	$	30.00
Budgeted fixed overhead (for the year)	$	580,000
Practical capacity, in units (annual basis)		10,000
Budgeted output for the coming year, in units		8,000
Normal capacity, in units (per year)		9,000
Actual production for the year (in units)		9,200
Actual overhead costs incurred during the year:
Fixed overhead	$	556,800
Variable overhead	$	148,200
Actual number of machine hours per unit for work done this period		0.49

Required

3. What is the total overhead variance for the year when the overhead application rate per machine hour is determined under each of the following options: (a) budgeted output, (b) normal capacity, and (c) practical capacity? Indicate whether each variance is favorable (F) or unfavorable (U). (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

5. What is the Overhead Efficiency Variance (= Variable Overhead Efficiency Variance) for the year when the overhead application rate per machine hour is determined under each of the following options: (a) budgeted output, (b) normal capacity, and (c) practical capacity? Indicate whether each variance is favorable (F) or unfavorable (U).

7. What is the total Overhead Spending Variance for the year under each of the following assumptions regarding the denominator activity level used to set the overhead application rate for the year:

a) budgeted output, (b) normal capacity, and (c) practical capacity? State whether each variance is favorable (F) or unfavorable (U).

8. Break down the Total Overhead Spending Variance (as determined in requirement 7) into: (a) a Fixed Overhead Spending Variance, and

(b) a Variable Overhead Spending Variance. State whether each variance is favorable (F) or unfavorable (U).

Answer 1

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		Budgeted	Normal	Practical
Budgeted fixed overhead	a	$ 580,000	$580,000	$     580,000
Units	b	8,000	9,000	10,000
Standard machiner hours per unit	c	0.50	0.50	0.50
Total Machine hours	b*c=d	$      4,000	$     4,500	$         5,000
Fixed overhead application rate per MH	a/d=e	$   145.00	$ 128.89	$       116.00
Variable overhead application rate	f	$           30	$          30	$              30
Total overhead per MH	e+f	$   175.00	$ 158.89	$       146.00
Part 3
		Budgeted	Normal	Practical
Actual overhead cost incurred:
Fixed		$ 556,800	$556,800	$     556,800
Variable		$ 148,200	$148,200	$     148,200
Total actual overhead incurred	a	$ 705,000	$705,000	$     705,000
Units produced		9,200	9,200	9,200
Standard machiner hours per unit		0.50	0.50	0.50
Standard allowed MH for actual output		4,600	4,600	4,600
Total overhead per MH		$    175.00	$ 158.89	$       146.00
Overhead applied	b	$ 805,000	$730,889	$     671,600
Overhead variance	a-b	$ 100,000	$ 25,889	$       33,400
		Favorable	Favorable	Unfavorable
Part 5
		Budgeted	Normal	Practical
Standard Variable overhead cost per MH	a	$           30	$          30	$              30
Standard allowed MH for actual output	b	4,600	4,600	4,600
Acutal no of hours worked:
No of units produced		9,200	9,200	9,200
Actual MH per unit produced		0.49	0.49	0.49
Actual MH worked during the period	c	4,508	4,508	4,508
	d=b-c	92	92	92
Variable overhead efficiency variance	a*d	$      2,760	$     2,760	$         2,760
		Favorable	Favorable	Favorable
Part 7
		Budgeted	Normal	Practical
Total actual overhead incurred	a	$ 705,000	$705,000	$     705,000
Budgeted fixed overhead	b	$ 580,000	$580,000	$     580,000
Budgeted Variable overhead:
Actual Machiner hour worked	c	4,508	4,508	4,508
Standard Variable overhead cost per MH	d	$           30	$          30	$              30
Flexible budget for variable overhead	e=c*d	$ 135,240	$135,240	$     135,240
Flexible budget for overhead	f=b+e	$ 715,240	$715,240	$     715,240
Total overhead spending variance	a-f	$    10,240	$ 10,240	$       10,240
		Favorable	Favorable	Favorable
Part 8
Fixed overhead spending variance:
Actual fixed overhead cost incurred			$556,800
Budegted fixed overhead			$580,000	$       23,200	Favorable
Variable overhead spending variance:
Actual variable overhead cost incurred			$148,200
Flexible budget for variable overhead			$135,240	$       12,960	Unfavorable
Total Overhead spending variance				$       10,240	Favorable