Ch.11 Exercises Norwall Company’s Flexible budget manufacturing overhead (in condensed form) is given below : The following information is available for.

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Presentation transcript:

Ch.11 Exercises Norwall Company’s Flexible budget manufacturing overhead (in condensed form) is given below : The following information is available for the recent period: The dominator activity is 60,000 hours was chosen to compute the predetermined overhead rate. At the 60,000 standard machine hours Level of Activity, the company should produce 40,000 units of product. The company’s actual operating results were: Number of units produced 42,000 Actual machine hours 64,000 Actual Variable Overhead cost $185,000 Actual Fixed Overhead cost $302,000

Denominator level of activity Required: Required: Compute the predetermined overhead rate and break it down into variable and fixed cost elements. What are the standard hours allowed for the year’s actual output? Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances. Overhead from the flexible budget for the denominator level of activity POHR = Denominator level of activity 480,000 POHR = 60,000

Denominator level of activity Solution (1) Overhead from the flexible budget for the denominator level of activity POHR = Denominator level of activity 480,000 Total rate = = 8 per MH 60,000 180,000 Variable rate = = 3 per MH 60,000 300,000 Fixed rate = = 5 per MH 60,000

Solution (2) 2. The standard hours per unit of product are: 60,000 hours ÷ 40,000 units = 1.5 hours per unit

Solution (3) 1- variable overhead spending and efficiency variances Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours 64,000 hours 63,000 hours × × $3 per M hour $3 per M hour $185,600 $192,000 $189,000 Spending variance $6,400 Favorable Efficiency variance $3,000 Unfavorable $3,400 Favorable flexible budget total variance

Solution (3) 2- Fixed overhead budget and volume variances Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied SH × FR 60,000 63,000 hours x × $5 per M hour $5 per M hour Budget variance $2,400 unfavorable $302,400 $300,000* $315,000 Volume variance $15,000 favorable *As originally budgeted. This figure can be expressed as: 60,000 denominator hours × $5 per hour = $300,000.