Question

In: Accounting

The following information for the past year is available from Thinnews Co., a company that uses...

The following information for the past year is available from Thinnews Co., a company that uses machine hours to apply factory overhead:

Actual total factory overhead cost $24,000
Actual fixed overhead cost $10,000
Budgeted fixed overhead cost $11,000
Actual machine hours 5,000
Standard machine hours for the units manufactured 4,800
Denominator volume—machine hours 5,500
Standard variable overhead rate per machine hour $3

1.The total actual variable factory overhead cost incurred during the year was:
2.The standard fixed overhead application rate is:

3. The variable factory overhead efficiency variance is:

4. The variable overhead spending variance is:

5. Under a three-variance breakdown (decomposition) of the total factory overhead variance, the total factory overhead spending variance is:

6. Under a two-variance breakdown (decomposition) of the total factory overhead variance, the total flexible-budget variance is:

Solutions

Expert Solution

Solution:

1)

Total actual variable factory overhead cost incurred during the year was = Total Actual Factory Overhead Cost $24,000 – Actual Fixed overhead cost $10,000 = $14,000

2)

Standard fixed overhead application rate = Total Budgeted Fixed Overhead Cost / Denominator volume—machine hours

= $11,000 / 5,500

= $2 per machine hour

3)

Variable factory overhead efficiency variance = Standard VOH Rate (Actual Hours – Std Hours for Actual Production)

= 3 (5,000 – 4,800)

= 3*200

= $600 Unfavorable

4)

Variable overhead spending variance = Actual VOH Cost – (Actual Machine Hours x Std VOH Rate)

= $14,000 – (5,000*$3)

= $14,000 - $15,000

= $1000 Favorable

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