Question

In: Accounting

Angie Manufacturing uses a standard cost system in which manufacturing overhead is applied to units of...

Angie Manufacturing uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours. At standard, each unit of product requires one machine-hour to complete. The standard variable overhead is $1.75 per machine-hour and Budgeted Fixed Manufacturing Costs are $300,000 per year. The denominator level of activity is 150,000 machine-hours, or 150,000 units. Actual data for the year were as follows:

Actual variable overhead cost $ 211,680
Actual fixed manufacturing overhead cost $ 315,000
Actual machine-hours 126,000
Units produced 120,000

Required:

a. What are the predetermined variable and fixed manufacturing overhead rates for the year?

b. Compute the variable overhead rate and efficiency variances for the year.

c. Compute the fixed manufacturing overhead budget and volume variances for the year.

Solutions

Expert Solution

a) Predetermined variable OH rate $      1.75
Predetermined fixed OH rate $      2.00 ($ 300000 / 150000)

b)

Data for Variable OH variances
Budget (1 unit) Standard (120000 units) Actual (120000 units)
Hour Rate Amount Hour Rate Amount Hour Rate Amount
1 $      1.75 $      1.75 120000 $      1.75 $ 210,000.00 126000 $      1.68 $ 211,680.00
Variable OH rate variance = (Standard Rate - Actual Rate) x Actual Hours
= ($ 1.75 - $ 1.68) x 126000
= $   8,820.00 (Favorable)
Variable OH effi. Variance = (Standard Hours - Actual Hours) x Standard Rate
= (120000 - 126000) x $ 1.75
= $ 10,500.00 (Unfavorable)

c)

Data for Fixed OH variance
Budgeted output 150000
Recovery Rate $             2.00
Budgeted OH $ 300,000.00
Actual output 120000
Actual OH $ 315,000.00
Recovered OH $ 240,000.00
Fixed OH budget variance = Budgeted OH - Actual OH
= $ 300000 - $ 315000
= $ 15,000.00 (Unfavorable)
Fixed OH volume variance = Recovered OH - Budgeted OH
= $ 240000 - $ 300000
= $ 60,000.00 (Unfavorable)

is this okay?


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