In: Accounting
In addition to other costs, Grosha Telephone Company planned to incur $600,000 of fixed manufacturing overhead in making 500,000 telephones. Grosha actually produced 508,000 telephones, incurring actual overhead costs of $599,400. Grosha establishes its predetermined overhead rate based on the planned volume of production (expected number of telephones).
Required
A. Calculate the predetermined overhead rate. (Round your answer to 2 decimal places.)
B. Determine the fixed cost spending variance and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)
C. Determine the fixed cost volume variance and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)
a. | Predetermined overhead rate | per unit | |
b. | Total fixed cost spending variance | ||
c. | Total fixed cost volume variance |
a) Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated total units in the allocation based
Predetermined overhead rate = 600,000 / 500,000 = 1.2 perunit
b) Total fixed cost spending variance = Actual fixed overhead cost - Estimated overhead cost
= 599,400 - 600,000
= 600 (F) Favourable
c) Total fixed cost volume variance = Actual fixed overheads - Estimated fixed overheads
Actual fixed overheads = Estimated fixed overhead rate * Actual units produced
= 1.2 * 508,000 = $609,600
Total fixed cost volume variance =$ 609,600 - $600,000 = $9600 (F) Favourable