Question

Norwall Company’s budgeted variable manufacturing overhead cost is $1.40 per machine-hour and its budgeted fixed manufacturing overhead is $57,288 per month.

The following information is available for a recent month:

1. The denominator activity of 20,460 machine-hours is used to compute the predetermined overhead rate.
2. At a denominator activity of 20,460 machine-hours, the company should produce 9,300 units of product.
3. The company’s actual operating results were:

Number of units produced		10,040
Actual machine-hours		21,330
Actual variable manufacturing overhead cost	$	61,857
Actual fixed manufacturing overhead cost	$	53,400

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.

	1. Predetermined overhead rate per MH Variable element per MH Fixed element per MH 2. Standard hours allowed for the actual production MHs 3. Variable overhead rate variance Variable overhead efficiency variance Fixed overhead budget variance Fixed overhead volume variance

Answer 1

Solution 1:

Predetermined overhead rate = Estimated overhead / Estimated machine hours

= (20460*$1.40 + $57,288) / 20460 = $4.20 per machine hour

Variable overhead rate = $1.40 per machine hour

Fixed overhead rate = $4.20 - $1.40 = $2.80

Solution 2:

Machine hours per unit = 20460 / 9300 = 2.20 machine hour per unit

Standard hours allowed for actual production = 10040*2.20 = 22088 machine hours

solution 3:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
21330	$2.90	$61,857.00			21330	$1.40	$29,862.00			22088	$1.40	$30,923.20
			$31,995.00	Unfavorable				$1,061.20	Favorable
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead rate variance					$31,995.00	Unfavorable
Variable overhead efficiency variance					$1,061.20	Favorable
Variable overhead cost variance					$30,933.80	Unfavorable

Fixed Overhead Cost Variance

Actual Fixed OH Cost

Budgeted Fixed Overhead

Standard Cost (FOH Applies)

SH*

BR

$53,400.00

$57,288.00

22088

$2.80

$61,846.40

$3,888.00

Favorable

$4,558.40

Favorable

Fixed overhead Budget Variance

Fixed overhead volume variance

Fixed overhead Budget Variance

$3,888.00

Favorable

Fixed overhead volume variance

$4,558.40

Favorable

Total Fixed overhead variance

$8,446.40

Favorable