Question

HawthornHawthorn

Foods processes bags of organic frozen fruits sold at specialty grocery store.

The company allocates manufacturing overhead based on direct labor hours.

HawthornHawthorn

has budgeted fixed manufacturing overhead for the year to be

$ 629 comma 000$629,000.

The predetermined fixed manufacturing overhead rate is

$ 16.40$16.40

per direct labor​hour, while the standard variable manufacturing overhead rate is

$ 0.50$0.50

per direct labor hour. The direct labor standard for each case is

one minus quarterone−quarter

​(0.250.25​)

of an hour.

The company actually processed

162 comma 000162,000

cases of frozen organic fruits during the year and incurred

$ 683 comma 350$683,350

of manufacturing overhead. Of this​ amount,

$ 652 comma 000$652,000

was fixed. The company also incurred a total of

41 comma 80041,800

direct labor hours.

.

Requirement 1. How much variable overhead would have been allocated to​ production? How much fixed overhead would have been allocated to​ production?

The variable overhead allocated to production is $

.

Now determine the fixed overhead allocated to production.

The fixed overhead allocated to production is $

.

Requirement 2. Compute the variable MOH rate variance and the variable MOH efficiency variance. What do these variances tell​ managers?

Begin by determing the formula for the variable MOH rate​ variance, then calculate the variable overhead rate variance.​ (Enter the result as a positive number. Enter rates to two decimal places. Label the variance as favorable​ (F) or unfavorable​ (U).)

								Variable overhead
		x (		-		)	=	rate variance
		x (		-		)	=

This variance tells managers that

HawthornHawthorn

Foods actually incurred

▼

less

more

on variable manufacturing overhead than they would have expected given the actual hours used.

Now determine the formula for the variable MOH efficiency​ variance, then calculate the efficiency variance. ​(Enter the result as a positive number. Enter any rates to two decimal places. Label the variance as favorable​ (F) or unfavorable​ (U).)

								Variable overhead
		x (		-		)	=	efficiency variance
		x (		-		)	=

This variance tells managers that

HawthornHawthorn

Foods used

▼

less

more

direct labor hours than anticipated for the actual volume of output.

Requirement 3. Compute the fixed MOH budget variance and the fixed overhead volume variance. What do these variances tell​ managers?

Begin by determing the formula for the fixed MOH budget​ variance, then calculate the fixed budget variance.​ (Enter the result as a positive number. Label the variance as favorable​ (F) or unfavorable​ (U).)

					Fixed MOH
		-		=	budget variance
		-		=

This variance tells us that

HawthornHawthorn

Foods spent

▼

less

more

than anticipated on fixed overhead costs.

Now determine the formula for the fixed overhead volume​ variance, then calculate the volume variance. ​(Enter the result as a positive number. Label the variance as favorable​ (F) or unfavorable​ (U).)

					Fixed MOH
		-		=	volume variance
		-		=

This variance tells managers that

HawthornHawthorn

Foods produced

▼

more

less

cases of frozen organic fruits than originally expected.

Answer 1

Requirement 1

Variable overheads allocated to production = Actual hours worked*Standard variable overheads per hour

Variable overheads allocated to production = 41,800 hours * $0.50 per hour = $20,900

Fixed overheads allocated to production = Actual hours worked*Standard fixed overheads per hour

Fixed overheads allocated to production = 41,800 hours * $16.40 per hour = $685,520

Requirement 2

Variable MOH rate variance is the difference between the standard rate and actual rate multiplied by the actual hours worked.

Actual variable rate = (683,350-652,000)/41,800 = $0.75 per hour

Variable MOH rate variance = (Standard rate - Actual rate)*Actual hours

Variable MOH rate variance = (0.50-0.75)*41,800 hours = 10,450U

This variance tells managers that Hawthorn Foods actually incurred more on variable manufacturing overhead than they would have expected given the actual hours used.

Variable MOH efficiency variance is the difference between the standard hours and actual hours multiplied by the standard rate per hour.

Standard hours to produce 162,000 cases are 162,000 cases*0.25hour/case = 40,500 hours

Variable MOH efficiency variance = (Standard hours - Actual hours)*Standard rate

Variable MOH efficiency variance = (40,500-41,800)*0.50/hour = 650U

This variance tells managers that Hawthorn Foods used more direct labour hours than anticipated for the actual volume of output.

Requirement 3

Fixed MOH budget variance is difference between budgeted fixed MOH and actual fixed MOH.

Fixed MOH budget variance = Budgeted fixed MOH - Actual fixed MOH

Fixed MOH budget variance = 629,000-652,000 = $23,000U

This variance tells us that Hawthorn Foods spent more than anticipated on fixed overhead costs.

Fixed MOH volume variance is difference between budgeted units and actual units multiplied by the standard rate per unit.

Standard fixed MOH per unit = 0.25hours/unit*16.40 per hour = $4.10

Standard quantity in actual hours = 41,800hours/0.25hours p.u. = 167,200 units

Fixed MOH volume variance = (Budgeted quantity - Actual quantity)*Standard rate p.u.

Fixed MOH volume variance = (167,200-162,000)*$4.10p.u = $21,320U

This variance tells managers that Hawthorn Foods produced less cases of frozen organic fruits than originally expected.