1. 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 ,000
Actual machine hours ,000
Actual Variable Overhead cost $185,000
Actual Fixed Overhead cost $302,000

2. 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

3. 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

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

5. 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 ,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

6. Solution (3) 2- Fixed overhead budget and volume variances
Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied
SH × FR
60, ,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.